Taxman’s green light to Hotel des Deux Domaines
Investors wanting to buy French ski hotels with their self-invested personal pensions (Sipps) have been given the green light by HM Revenue & Customs, after years of confusion on the issue.
Sykes Anderson, has recently had confirmation from HMRC that a client’s investment in a suite in the Hotel des Deux Domaines, in Belle Plagne, using the country’s leaseback scheme is eligible for a Sipp and can therefore benefit from UK tax relief.
Under the leaseback scheme, investors buy a freehold property from a developer and lease it back to a management firm, which lets it to holidaymakers. However, until now, investing in a French leaseback property using a UK pension fund has been a grey area. Hotels are usually classed by HMRC as commercial properties and, as such, are eligible for Sipps, but this principle is complicated by the leaseback structure. Owners are often given the right to stay in the accommodation for two to four weeks a year, which blurs the distinction between commercial and residential property in the eyes of HMRC.
Any accommodation rights must therefore be written out of the contract in order for the property to qualify for a Sipp Property in the Alps has also been relatively resilient to the problems in the eurozone. While prices fell by as much as 20% in 2008-09, values in many ski resorts have now recovered to their pre-recession levels.
Leaseback schemes are particularly common in ski resorts, where they are managed by recognised management companies, which offer minimum returns of 3%-5% from letting, whilst also giving the investor generous tax breaks. Buyers can recoup French Vat at 19.6% of the purchase price and are exempt from capital gains tax after 15 years.
So what are the benefits of putting commercial property in a pension?
When you contribute to a UK pension, the government offers tax relief of 20p for every 80p invested. A higher-rate payer can claim a further 20p via their tax return, while a 50% payer can claim 30p. So it would cost £50,000 to get a fund of £100,000. Sipps can also borrow 50% of the value of their assets to buy property, so with a fund of £100,000, you could buy a property worth £150,000 — for an outlay of just £60,000.
Is a French scheme right for me?
John Fox of Liberty Sipp, a pension firm with clients who invest in commercial property, said: “You would not want to put your whole pension in one. You would need to spend £200,000 for a good quality hotel room, so you would need a fund of £800,000 for it to represent only a quarter of your portfolio.”
I’m still interested. How does HMRC classify a hotel room?
Fox said: “HMRC refers only to the dictionary definition of a hotel, but you would expect it to have a reception, room service, a concierge and so forth. In other words, not a single house within a complex which shares only a swimming pool with the other properties.” HMRC said: “ Whether or not a particular investment would constitute residential property will depend on the particular facts of the case.”
For the original text of the article (Subscription required) please click here:
Latest News
-
First Closing of the Alpine Hotel Investment Fund at £2m.
Profin is pleased to announce the following milestones have been successfully reached:
Click here to read more -
The safest way in the world to invest in property?
French leaseback properties combine one of the lowest levels of investor risk of any type of property investment, some superb tax benefits, genuine and sustainable long-term rental guarantees with very limited ownership costs and fixed finance repayments.
Click here to read more
