An online property platform is offering people the chance to invest in residential property through a self-invested personal pension (Sipp), which will have no administration fee.
Bricklane.com is offering the product as a way for people to invest in property without having to take their money out of their pensions and without the day-to-day hassle and tax drawbacks associated with investing in a buy to let property.
The digital platform’s Regional Capitals fund, which has Real Estate Investment Trust (REIT) status, can now be included in Hartley Pensions’ Sipps with zero administration fees for investments of more than £25,000.
Bricklane says it has the only geographically targeted residential buy-to-let real estate investment trusts (REITs), while others focus on the private rental sector or student accommodation.
For example, REITs such as GCP Student Living and Empiric Student Property specialise in investing in student accommodation, while the Sigma Capital Group targets investments in the private rented housing sector. Meanwhile, launched in June, PRS focuses on build-to-rent homes.
Under HMRC rules, residential property can’t be held directly in a Sipp. But it can be held in this type of pension wrapper through certain types of collective investments, such as REITS. However, not all Sipp providers accept this type of investment.
Those investing less than £25,000 into the fund will pay Bricklane’s usual 1.25% investment fee and a 0.85% annual management charge. Administrative costs of running the Sipp at Hartley Pensions are currently a £150 set-up charge and £210 a year for the Sipp wrapper. There are no exit penalties payable, though it should be considered a long-term investment.
The fund returned 8.72% to its investors in its first year (net of management fees) through a combination of capital growth (68%) and rental growth (32%).
Bricklane.com’s Regional Capitals fund focusing on the cities Leeds, Manchester and Birmingham can be included in the Sipp. The platform says that its other fund, which is London-centric, will be added shortly.
The fund’s properties are all within walking distance of city centres and are typically priced between £120,000 and £400,000. There are currently 17 properties in the Regional Capitals fund with £4.5 million assets under management. Tenants are on standard assured shorthold tenancy agreements and pay no lettings fees.
Bricklane.com has launched the Sipp at a time when buy-to-let landlords are facing increased costs through tougher tax and underwriting rules. Since April 2016, those buying an additional property have had to pay an extra 3% on stamp duty, while also facing the phasing out of tax relief on mortgage interest from April 2017.
Since 30 September, new Prudential Regulation Authority (PRA) underwriting rules have meant that landlords with four or more properties will now face tighter affordability checks if they want to refinance one or more of their properties.
What could investors do instead?
Consider the TM Hearthstone UK Residential Property fund. This invests in private rented sector housing across the mainland UK region and aims to capture UK house price growth plus provide an element of income return.
Alternatively, consider commercial property funds and investment trusts. These pool money to buy property that is rented out to businesses and are the most common way for individuals to invest in bricks and mortar – indeed, they are often called ‘bricks-and-mortar funds’.
‘Investors don’t have to make trade-off between property and pensions’
Simon Heawood, chief executive of Bricklane.com, says: “Many still consider residential property to be an attractive investment option for retirement planning, and there have been long-standing demands from investors and advisers alike for its inclusion in tax-efficient pension wrappers. But investors don’t have to make the trade-off between investing in property and the benefits of keeping money within their pension.
“Our partnership with Hartley Pensions allows us to offer our residential property fund in a Sipp with no third-party charges, meaning customers can open a new Sipp at no additional cost or transfer from an existing provider and make instant savings.
Denis McHugh, chief executive of Hartley Pensions, adds: “Bricklane.com’s Regional Capitals fund is ideal for investors looking to capitalise on residential property returns through their Sipps. The partnership will mean savers no longer need to withdraw money from their Sipps just to get access to bricks-and-mortar returns as they can now take advantage of this diversified and tax-efficient investment product within their pension.”