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» PROPERTY FOCUS: Bulgaria's Ownership Act changes
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» The Cost of Living in Bulgaria
» Buying property in Bulgaria
» BG property is the countries fastest growing asset
» Financing a property purchase in Bulgaria
» Driving your classic car to your Bulgarian property and all via a pension
» Bulgarian Property, a good proposition or investment Bubble
» Important DSK Mortgage Information
» Property Awards, What are they Really Worth?
» Buying in Bulgaria, UK Mortgages v Bulgarian Mortgages
» Britons Find Bulgarian Prices are Right for Holiday Homes
» Britons Buying Abroad
» Bulgaria Growing in Popularity
» Bulgaria "Top Country for Holiday Makers, Property Investors"
» Residential Prices In Bulgaria Up 36%
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» London Funds to Invest 400M in Bulgarian Properties
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» Bulgaria Names Amongst Top Countries For Investment Opportunity
» British Embassy Advises Investing In Bulgaria
» Bulgaria`s Real Estate Trusts Attract UK Investors
» All Time High In Bulgaria`s Property Sales
» Bulgaria Increasingly Attractive To Foreign Investors
» Bulgarian Property Market May Get Huge Boost From Tax Changes In Britain
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» Bulgaria - Top Country for Holiday Makers, Property Investors
» Low-cost Wizz Air Launches New Routes From London To Sofia, Burgas
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» Bulgaria's Real Estate Market Marks Europe`s Highest Growth

Driving your classic car to your Bulgarian property and all via a pension
 The Self Investment Personal Pension (SIPP) scheme has been in existence since 1989 but will undergo some radical changes as of 6th April 2006 (know as ‘A-Day’ in industry lingo). Currently SIPPs represent a sound long term investment for, among other reasons, great tax advantages.

The government is keen to encourage people into pension savings and attempts this by offering ‘tax relief’ on any contributions they make. Simply put, each pound you contribute to your pension is a pound less the government will tax your income. Furthermore, the government facilitates these contributions by making payments concurrently with the taxpayer. So, for example, if a basic rate taxpayer (who pays 22p in the £) wants to contribute £100 to their SIPPs they would only need to contribute £78 and then their pension scheme would request the further £22 from HM Revenue and Customs (HMRC).

A higher rate taxpayer (paying 40p in the £) contributing £100 to their scheme would still contribute £78, with a further £22 being sourced from HMRC by their scheme. The outstanding £18 is claimed back by the taxpayer in their annual tax return or by completing a form (PP120) available from the tax office or pension scheme administrators.

Being a pension scheme, there is no tax payable on the capital gains from any investment made under a SIPP, nor is income from investments (eg. rent) taxable.


SIPPs are aimed at the following categories:

  • self-employed
  • those not earning an income
  • employees whose employers do not offer a company pension
  • employees who choose not to pay into their company pension
  • employees on a moderate income who wish to top up their company pension

SIPPs might not be suitable for those:

  • whose company offers an occupational pension scheme
  • whose employer offers access to stakeholder pension scheme with an employer contribution

Until the official announcement of SIPP changes nothing is certain. Of the likely changes, the two most relevant for those in property related businesses are newly included assets and the increase in the tax relief limit. Currently, the assets allowed in a SIPP are major stocks and shares, investments trusts, unit trusts, OEICS, commercial properties etc. The glaring omissions are domestic and international residential and buy-to-let properties. As of A-Day these previously forbidden assets will be available for funds. A whole host of new assets will be available including domestic and international residential properties (buy-to-let’s, holiday homes etc) and even classic cars! Furthermore, the SIPP beneficiary will be able to live in their SIPP private residence, at a ‘below market’ rental value taxed as a ‘benefit in kind’.

The tax relief limit will also be raised on A-Day. Currently, you can receive tax relief on 17.5% to 40% of your salary, depending on age, up to earnings of £105,600pa. As of A-Day, tax relief will be granted on 100% of salary and there will be an annual allowance of pension savings of £215,000.

The combination of the tax relief and pension saving thresholds mean that, managed correctly, the potential savings can be enormous. A purchase of an investment property by a SIPP worth £100,000 can invoke a £40,000 contribution by the taxman. Theoretically, if a higher earner chose to invest their income to the new annual allowance they could purchase a property worth £200,000+ with £80,000+ of Her Majesty’s gold.

The notion of international property SIPPs being limited to certain countries is a fallacy (at this stage). International property will (most likely) be included in SIPPs but it is the laws of the country in which the property stands that will restrict its inclusion. A SIPP’s assets are owned by a UK trust and this is where problems arise. Some countries (Spain being a much discussed example) do not recognise UK trusts as owners of property and this problem extends to many other European countries. There may also be problems in ensuring that the SIPP obtains good title to the property.

One possible solution to this problem is for the UK SIPP trust to own shares in a company, registered in that country, which owns the property. For example in Bulgaria, the property would be owned by a Bulgarian Ltd company, which is in turn owned by a UK trust which administers the SIPP. There may also be the possibility of setting up a ‘contract based SIPP’ as opposed to a ‘trust based SIPP’ but this has only been touched on for now and has hardly been explored.

Overseas tax liability can very often be offset via double-taxation relief agreements that the UK has with around 100 countries. But a SIPP is essentially exempt from UK tax so there will most likely still be overseas taxes to consider. For Bulgarian investments this would mean that there may be Bulgarian capital gains tax payable at sale and Bulgarian income tax payable on rent.

Bulgarian property investments can fortunately take advantage of capital gains tax exemptions. Any property held for the purpose of principle residence is exempt from capital gains tax after 3 years. Furthermore, any 2 properties that are not the taxpayer’s principle residence are exempt from capital gains tax after 5 years.

Further SIPPs tax benefits include:

  • The assets will not be subject to UK inheritance tax and might not be subject to overseas inheritance tax.
  • The beneficiary can borrow up to 50% of the value of the trust and, in certain circumstances, up to 80% of the value of the property.