What a difference A Day makes!

6th April 2006 is A Day. Everything about pensions changes then: mostly for the better, and you need to plan for those changes now.

1. You can get tax relief on all your income

2. Your pension can buy buy-to-lets, holiday homes and villas abroad; and it can even take out a mortgage!

3. You control how you take you pension when you retire, you never have to buy an annuity and your kids can inherit your pension when you die

1. Tax relief on all income
You can pay all your income into a SIPP (up to a maximum of 215,000 pa) and get full tax relief on it. So, if for instance, you earn 100,000 a year and you are sitting with cash in a bank account that you dont need, you can pay 100K into your SIPP and it will cost you as little as 60K after full tax relief.

One amazing thing is that you can start a pension for your children and get tax relief on that, and the money goes outside of your estate for IHT purposes, so if you have spare cash and want to help your kids enjoy their future it is worth considering.

2. Your pension can buy Property
A SIPP is a self invested personal pension. It can buy property in the UK or Abroad. You can even sell it property you already own, and hence free up the equity. Whats more, your SIPP can take out a mortgage to help with the funding. And, of course, you can move your existing pension funds into your SIPP, so that takes the money away from pension company funds and frees it up to buy property.

The tax advantages of your SIPP owning property are huge.

a)Rental Income is tax free, you pay no Income Tax
b)You don't pay Capital Gains Tax
c)Assets within your SIPP are not part of your personal estate on death.

So, if you personally own another property, the rent you receive could be eaten away by tax; when you sell the property the Taxman takes another bite, and if you die he gets you again. But, put that property into a sipp and the Inland Revenue will let you enjoy enormous tax advantages. That is why sipps are the hottest thing happening and millions of people will take one out over the next few years.

3. Compulsory Annuities cease and Retirement flexibility increases Most people hate having to buy an annuity when they die. With an annuity you give up your pension funds and instead you get an income for life, but that dies with you (or your partner). So, as well as being very inflexible it is poor value for money if you die early and does not allow you to pass your pension funds on to your children or grandchildren.

After A Day, 25% tax-free cash can be taken from your SIPP. You then choose how to take an income, and you dont have to take any income if you dont want to! On your death your remaining pension fund goes to your nominated beneficiaries.

What should you do now?
If you have existing pension funds, you need to get these moved into a SIPP now. It can take quite a time for these transfers to happen, and you want the funds available for A Day.

If you are buying a property off-plan, your SIPP can pay the deposit now. SIPPs cant buy property until next April, but they can start to buy off-plan, so you need to know how the process works.

So, in summary, take expert advice now. The clock it ticking for the most tax efficient, flexible way to buy property that this country has ever allowed.