Property Syndicates

With more and more investors deciding to put their money into property, the
topic of property syndication, or pooling of resources, is often thought of
as a great way to extend a portfolio and enjoy economies of scale. However,
property investors joining forces should consider some important factors, before
diving in!

Property for your pension plan

Property syndicates have only really come into the forefront of investors’ attentions
since Gordon Brown did a u-turn on the proposals to allow investors to use
residential property as part of a personal pension plan. When it was announced
that investors would no longer be able to use a personal pension plan to enjoy
tax relief on residential property, there was a renewed interest in property
syndicates that would still, in certain circumstances, attract favourable tax
treatment.

When it comes to property syndications, it is possible either to join an established
group whereby you, as an investor, simply put in a financial contribution and
leave the running of the property to a management company. This works very
well for investors who merely want to back the property market, but do not
want the hassle of dealing with the day to day maintenance of the properties
in the portfolio.

Alternatively, it is possible to create your own syndicate with a group of
family and friends who want to work together to produce a healthy return and
also benefit from the tax relief that is offered for property syndicates.

These types of funds are often referred to as ‘family funds’ although
they are not open strictly for family members and can be a group of friends
or acquaintances that are not related in anyway.

In order to allow the property investment to be able to be part of a self
invested pension plan, there are certain restrictions with which you must comply.
The first and most important rule is that it must be an indirect investment.
Therefore, those joining together to purchase the property portfolio cannot
each directly own one or more of the properties. Instead, it would be necessary
for all of the investments to be pooled into a management company and the cash
that is then the asset of the management company will become the entity that
owns the properties.

A certified financial planner, Patrick Connolly, has warned investors of the
difficulties of investing through the use of syndication: “Residential
property investments will be allowed through ‘genuinely diverse commercial
vehicles’ or indirect investments. This will include UK real estate investment
trusts (Reits), collective property funds such as unit trusts and syndicates
of 11 or more individuals”.

There are other restrictions such as the value of the syndicate having to
be at least one million pounds or there must be at least three properties in
the syndicate. Only ten percent of the syndicate can be part of the self-invested
personal pension scheme and any additional monies held in a SIPP will not benefit
from any tax relief that might potentially be available. It is also important
that the purpose of investment cannot be for a member of the syndicate or a
connected person to use the property for their own purposes.

One of the key advantages of using a property syndicate, aside from the potential
tax saving, is the diversity that can be created in a portfolio. If you are
a group of 11 investors, each putting in £100,000, you will then have £1,100,000
available in order to purchase multiple properties of different styles such
as a city flat, a country retreat and even a property abroad. By doing this,
it is possible to spread the risk of property investing in a way that would
not be possible for one investor with only £100,000.

There are, of course, potential administrative hurdles and a company will
have to be set-up in order to manage the properties. Although this requires
some initial time and expense, the ongoing maintenance should not be terribly
onerous and the benefits of diversification should be well worth the initial
effort!

For more information on how to set up a property syndicate, take a look at
these sites:

www.financialplanning.org
www.ukinvestmentadvice.co.uk
www.rics.org.uk

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