It has been four years since the government abandoned plans to allow Self-Invested Personal Pensions (SIPPs) to invest in residential property; but commercial property can still be placed in your pension.
And that includes using your SIPP to acquire a hotel room, an investment which for some people is much more appealing and easily understood than buying warehouses, offices and retail premises.
The basic advantage of any investments held in a SIPP is that income generated by the assets within the pension scheme is free of tax, and growth in value is free of capital gains tax. You only pay tax when you draw an income or annuity from the pension.
In the case of property, there's an additional advantage over other types of assets: you are allowed to borrow up to 50per cent of the value of your pension fund to invest. So if you had a £100,000 fund, you could borrow another £50,000 to buy a property costing £150,000, which means it's a rare opportunity to gear up your pension fund.
If the market does well, your investment could be accruing rental income over a number of years, at the same time as it is gaining in value. When your pension fund sells the hotel room, the pension pays off the mortgage, and you are left with the profit as well as the rolled-up income to provide you with a pension.
One major caveat that comes with this form of investment: you can't use the property yourself – if you do so, you could jeopardise your tax treatment and face a hefty bill from HM Customs and Revenue.
In theory, any hotel room could be included in a SIPP, but in practice, you will need to find a SIPP manager that offers this facility, and the property itself will need to be confirmed as qualifying for SIPP investment. In the final reckoning the SIPP trustees must be prepared to sanction the investment.
The Revenue is generally keen to ensure that the property is a genuine hotel and not a regular apartment, so some SIPP providers may be wary about allowing investment in a property that has a kitchen or even parking allotted.
Suffolk Life is one of the longest established SIPP administrators, and does not accept non-UK property investments at all. Its property director, Peter Weir, says: "The reason is that we don't understand foreign property laws and liabilities." He adds: "We have advised investors to be very careful about hotel rooms. People should not be misled by labels, and should ask if the property is really a hotel room or whether in reality it is a flat."
In any case, it is vital to carry out the same due diligence that you would with any property before investing; and to research whether it really will prove a good investment. Properties that are – on the face of it – eligible for SIPP investment can be found in a number of countries. The Hotel des deux Domaines is a hotel in the French ski area of La Plagne where a number of investors have bought rooms through a SIPP. Prices start at €241,000, and the developers are promising a guaranteed rental return of 5 per cent for six years. See the development here.
Another more exotic opportunity is Caracola Beach and Spa Resort on the Island of Margarita in Venezuela. Prices at the apart-hotel complex start at around £69,000 and a guaranteed minimum rental of 7 per cent for 10 years is being offered.
Alexander Garrett is a freelance property writer who contributes regularly to The Observer and British Airways' Business Life.