London

LCP launches fourth property fund to take advantage of new SIPP and ISA rules

London Central Portfolio’s (LCP) recently launched fourth fund, London Central Apartments II (LCA II), is specifically designed to be SIPP and ISA eligible.

With a projected IRR of 14 per cent per annum, it enables savers to be tax efficient whilst receiving solid returns.
 
Naomi Heaton, CEO of LCP, says: “This diverse eligibility may come as a surprise. Widely known that commercial property can be directly held in a SIPP, Gordon Brown’s 2006 U-Turn dashed the hopes of directly holding residential. However, LCA II can as it complies with HMRC’s criteria of being a ‘Genuinely Diversified Commercial Vehicle’ (GDCV). Few other residential funds meet this requirement.”
 
The closed-ended structure does mean investors need a medium term horizon (the fund will run for five years with a long stop date of seven years). By 2019, however, the projected return is GBP12,150 on a GBP15,000 investment, far higher than fixed rate cash ISAs which pay-out after the same period.
 
Despite open-ended residential funds offering liquidity, money is usually held back to cover redemptions so investors may not get the property exposure anticipated. Some well-known funds have had to suspend redemptions when investors flood in to withdraw money in a falling market.
 
Hugh Best, investment director, says: “LCP’s first two funds have demonstrated exceptionally strong results at their most recent valuations yesterday showing increases in capital values since acquisition of over 50 per cent. Their third fund, fully invested in December 2013, has already shown an increase of 27.8 per cent. Whilst past performance is not a guide to the future, they are all on track to achieve their target returns.”
 
Regulated and approved by the Jersey Financial Services Commission and the Channel Islands Stock Exchange Authority, the mandate for LCA II follows the model of LCP’s previous three funds. It will acquire a diversified portfolio of one and two bedroomed properties in the prime postcodes surrounding Hyde Park, which are upgraded and designed to target the thriving private rented sector. LCA II is the only Sharia compliant residential fund in the UK, making it accessible to both conventional and ethical investors. From a global perspective, it is also eligible for offshore pensions such as QROPs and QNUPs and for offshore portfolio bonds.
 
By virtue of undertaking a ‘genuinely commercial activity’, LCA II is already exempted from higher rate 15 per cent SDLT and the Annual Tax for Enveloped Dwellings. Following the changes announced in the 2014 Budget, issued in detail recently, LCA II has become yet more tax efficient, particularly for non-residents. As it has Genuinely Diverse Ownership (GDO), it is exempted from the CGT charges to be levied on non-resident buyers from April 2015.
 
The minimum subscription is set at GBP85,000 for direct investors. However, there is no minimum limit if it is made through a regulated entity. Therefore, in July, a married couple could invest their full year’s ISA allowance (GBP30,000) and benefit from the returns offered by Central London’s top quality real estate with significant tax savings alongside.
 
Top end London property has been a prime performer, not only over the credit crunch but over the past four decades, showing average annual growth of nine per cent per annum. It matches investors’ desire for blue-chip tangible assets and has a proven track record. Values in Central London are up 60 per cent on a pre-recession high, whilst the stock market has floundered with only one per cent growth. With average property prices of nearly GBP1.5m, LCA II enables investors to access this previously out of reach asset class for a fraction of the cost of the direct investment, whilst benefiting from buying power, professional expertise and diversification.
 
“LCA II is probably the best positioned investment vehicle now to benefit from the opportunities that Central London residential presents and the new savings and tax measures put in place by the government,” says Heaton.

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