April 2006 sees the advent of new pensions legislation that may come as a boon to anyone seeking to secure a weekend retreat, a retirement home on the Costas, or even accommodation for student children. From then, the new Self-Invested Pensions Plan (SIPP) scheme will be in place which is designed to allow people to manage their pensions themselves, rather than relying on external fund managers. Under the SIPP legislation, residential property is a permitted investment.

The advantage of using such a scheme will be that tax relief at your marginal rate of income tax will be given on the cost of the property, because it is financed by a pension contribution. Any rents received are received tax free and the subsequent sale of the property is, unlike a normal second home, not subject to Capital Gains Tax. The relief is available for contributions of up to £215,000.

With such bounty on display, there must be a downside, and there is. Firstly, in order to make such an investment, there must be at least £75,000 in the SIPP fund. Secondly, the property will be owned by the pension fund, which will be responsible for meeting all necessary expenses. Thirdly, when you are in occupation, you will need to pay the appropriate market rent for the property to your pension fund.

In the long term, holding property in a SIPP should be attractive for tax purposes, but it does require careful thought. The point of a pension fund is, after all, to provide a pension and it remains to be seen, for example, how Local Authorities will deal with such assets when undertaking financial assessments of people needing care.