Buying a yacht berth with your pension pot

Taking a step back here and looking at the big picture.

The spirit of a scheme like this is for the SIP to make a return on its investment.
If Whitelighter were to buy this berth using his SIP and he puts his own boat on the berth, he would be the person paying the return on his SIP's investment.
Assuming that this scheme were to make a sensible return, over the long term, that would have the effect of Whitelighter putting extra (tax paid) money into his SIP.
At the end of the scheme, I would expect that the SIP still had the original stake plus the extra (tax paid) money that he has paid for its use.
Surely, thats not very tax efficient?
However, if he were buying it to rent out to others, it would then be considered just like any other investment (assuming that HMRC etc allow it).

IMHO, SIPs are OK and very good for IHT planning but I like to think investments are better inside fully tax free environments (ISAs - Offshore Bonds - etc)

Maybe there is a benefit in that you can release some capital from a SIP and make it work specifically for you whilst still retaining the spirit of the SIP's investment..
But the end result seems to me to be putting tax paid money into a SIP.
 
Hurricane said:
Taking a step back here and looking at the big picture.

The spirit of a scheme like this is for the SIP to make a return on its investment.
If Whitelighter were to buy this berth using his SIP and he puts his own boat on the berth, he would be the person paying the return on his SIP's investment.
Assuming that this scheme were to make a sensible return, over the long term, that would have the effect of Whitelighter putting extra (tax paid) money into his SIP.
At the end of the scheme, I would expect that the SIP still had the original stake plus the extra (tax paid) money that he has paid for its use.
Surely, thats not very tax efficient?
However, if he were buying it to rent out to others, it would then be considered just like any other investment (assuming that HMRC etc allow it).

IMHO, SIPs are OK and very good for IHT planning but I like to think investments are better inside fully tax free environments (ISAs - Offshore Bonds - etc)

Maybe there is a benefit in that you can release some capital from a SIP and make it work specifically for you whilst still retaining the spirit of the SIP's investment..
But the end result seems to me to be putting tax paid money into a SIP.
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Remember that if this is new money going into the SIPP he will get tax relief on it so it will only cost him €15k to buy the €25k berth (subject to contribution limits). And he would have the benefit of the berth being continuously occupied. And any profit would sit in the SIPP.
 
petem said:
Remember that if this is new money going into the SIPP he will get tax relief on it so it will only cost him €15k to buy the €25k berth.
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Maybe this isn't the way to look at it but if this is not new money going into the SIPP and he just wants to use the money that is already in his SIPP - what is the benefit then?

As you can see, I'm no expert in these kinds of things - just interested.
 
Whitelighter said:
but if i'm going to pay rent, why not pay it to my pension?
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We thought of doing this some years ago as it seemed like a brilliant wheeze but our pension trustees flatly refused to sanction it. Commercial property in the UK, no problem, mooring in the Med, big problem

In any case, I know that Hurricane has given an example of how it works for him but berth prices in other marinas are a lot higher and I've never managed to understand how owning a berth works out financially
 
I'm assuming any profits from this would count towards the pensions annual allowance? If the OP happens to be in a very good defined benefit scheme, he might be quite close to the limit anyway?
 
In my simplicity I wonder what the berth will be worth in 22 years time. Does it still have a value?
If not then the depreciation must be spread to offset the income but when the pot might actually come in handy upon retirement it may not be there.
Isn't this not the idea?:confused:
 
Montemar said:
In my simplicity I wonder what the berth will be worth in 22 years time. Does it still have a value?
If not then the depreciation must be spread to offset the income but when the pot might actually come in handy upon retirement it may not be there.
Isn't this not the idea?:confused:
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Yes - in 22 years, the lease will be worthless.
For that reason, the value should be depreciated by an equal amount each year to end up at zero.
So, I still don't see what the advantage would be holding it in a SIPP.
IMO, you would effectively be funding the SIPP with tax paid money.
At the end of the term, the SIPP would have the same amount in it that it started plus any extra that was agreed as income on the investment.
I'm probably not explaining myself properly but any personal payments for the use of the berth must include the element of depreciation.
However, the way I see it is that at the end of the term, the money in the SIPP would have come from "hard earned" taxed income and any advantage that you would have gained from funding the SIPP in the first place would have been lost.
I've probably got it wrong though.
Maybe someone could explain where there would be any benefit (apart from releasing some capital early).
 
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Also SIPP fee's for the type of SIPP which has the flexibility to purchase this type of asset will most likely cost £500-750+vat pa to run. That's no issue if the SIPP's pot is large but if its being setup solely for this purchase, 22yrsx£750+vat and assuming no increase in charges, comes to a princely sum of £19,800 or about EUR 27k
 
Hurricane said:
IMO, you would effectively be funding the SIPP with tax paid money..
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Mike, the point is that you're not funding the SIPP with tax paid money. For example, if you have a company based SIPP, you can put money into it from the company and set it off totally against corporation tax up to an annual limit so the money in the SIPP will be tax free. Unfortunately, there are strict regulations on the kind of investment that a SIPP can make and in my experience, investing in a berth would not be allowed
 
Deleted User said:
Mike, the point is that you're not funding the SIPP with tax paid money. For example, if you have a company based SIPP, you can put money into it from the company and set it off totally against corporation tax up to an annual limit so the money in the SIPP will be tax free. Unfortunately, there are strict regulations on the kind of investment that a SIPP can make and in my experience, investing in a berth would not be allowed
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Thanks Mike

Yes, I think we are all saying that the scheme wouldn't be allowed.
But my point is that it isn't worth it anyway.

It isn't the money that you put into the SIPP - I'm sure that is tax efficient.
It is the end result (at the end of the scheme) that doesn't make sense to me.

I'm assuming that you wouldn't be allowed to simply "loose the money" and that you would have to make personal payments for the use of the berth.
To make it a viable investment for the SIPP, the payments would need to cover the depreciating value of the berth's lease plus a profit/interest.
Lets take the £20,000 as an example.
The SIPP would buy the lease.
You would then have to make payments back into the SIPP of £20,000/22 years = £909 plus an interest (say 5% on the £20,000 = £1000) per year.
A total of £1909 per year for 22 years = £41,998 for the use of the berth for 22 years.
The above sum isn't relevant - it just outlines a scheme that would return a sensible amount into the SIPP as an investment.
My thoughts are that a scheme that has any chance of being approved would have to make a return for the SIPP.

My point is that the payments for the use of the berth (£41998) have been made out of "tax paid income".
The SIPP is no worse off - it has made its return.
But initial the money in the SIPP has been replaced by "tax paid income" (assuming that the SIPP belongs to the person who has been using the berth).

Or am I missing something here?
 
I think the original comparison was between buying the berth using the sip and just renting a berth.
So with a gross simplification.

Option 1:
Sipp pays 20k tax free for berth.
WL pays 42k after tax to the Sipp for use of the berth.
End Result: Sipp has 42k.

Option 2:
Sipp keeps 20k tax free in cash.
WL pays 42k after tax to someone else of use of the berth.
End Result: Sipp has 20k.

But I would think given the extra fees involved, you'd be better off buying the berth straight out, and putting the extra money you'd be paying to rent the berth into a normal pension over the next 22 years.
 
James L said:
I think the original comparison was between buying the berth using the sip and just renting a berth.
So with a gross simplification.

Option 1:
Sipp pays 20k tax free for berth.
WL pays 42k after tax to the Sipp for use of the berth.
End Result: Sipp has 42k.

Option 2:
Sipp keeps 20k tax free in cash.
WL pays 42k after tax to someone else of use of the berth.
End Result: Sipp has 20k.

But I would think given the extra fees involved, you'd be better off buying the berth straight out, and putting the extra money you'd be paying to rent the berth into a normal pension over the next 22 years.
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I agree all that
 
James L said:
But I would think given the extra fees involved, you'd be better off buying the berth straight out, and putting the extra money you'd be paying to rent the berth into a normal pension over the next 22 years.
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That presupposes that the OP has got the cash to buy the berth outright straightaway. I think probably the point of the thread really is that most people have got all their spare cash tied up in a pension and whether it would be possible to use that cash for buying a berth. Of course if you had enough cash to buy the berth outright anyway, you wouldn't bother messing around using your SIPP to do it
 
What about if your pension pot is above the new pension limits? Buying a short lease berth could be a way of bringing the pension pot size down??
 
MRC said:
What about if your pension pot is above the new pension limits? Buying a short lease berth could be a way of bringing the pension pot size down??
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Good thought, but all you would do is swap cash (value in pension) for an asset (also value in a pension)
 
kcrane said:
Good thought, but all you would do is swap cash (value in pension) for an asset (also value in a pension)
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But you would be buying with tax efficient money? Saving 45/50% on the way in or not paying 55% on the way out as the asset would in theory depreciate to £ZERO.
 
I think the point that everyone seems to be missing, is that the OP believes that purchasing a berth and letting it out is a profitable venture (particularly when you have the guarantee of letting it continuously at a commercial rate - i.e. to himself). A SIPP (or SSAS) would potentially be a tax efficient wrapper and may make good use of the OP's pension fund.

As a salaried person myself without large reserves of cash sloshing about I can see where he is coming from!
 
MRC said:
But you would be buying with tax efficient money? Saving 45/50% on the way in or not paying 55% on the way out as the asset would in theory depreciate to £ZERO.
Click to expand...

I see where you are coming from, but I thought you couldn't buy depreciating assets with pension monies. So as petem says, you have to make it a money making scheme for your pension fund, paying your own scheme for the use of the asset. In which case you'd use taxed money to pay for it, and couldn't claim it was a contribution in the normal way, so no tax relief, per Hurricane's comments. So you get untaxed money out to buy the lease, but put taxed money back to compensate the scheme, so no real advantage, though my ability to hold all of the rules and maths in my head at once isn't conducive to an accurate assessment :)
 
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