It should be noted that without appropriate tax planning a property in a foreign location is potentially subject to the tax burdens of the local jurisdiction. Many SIPP providers are predicting a rapid expansion in SIPPs post A-day, predictions are that there will be a five-fold increase by 2010, to half a million SIPPs under administration. If you are already have a foreign property in your own name, it should be permissible post "A Day", for you to sell your property at a market price to your Pension Fund. Advice should be taken about the costs of transfer and your exposure to Capital Gains tax on the transfer. Care should be taken when deciding which structure you select for holding your overseas property. Restrictions on your use of SIPP asset -- the overseas property for example - will apply. This means that the contributor may be taxed on the basis of their receipt of a "benefit in kind" from their use of the property. This should be mitigated by the payment of a commercial rent for their use to their Pension Fund.

Commentators have suggested that if the contributor pays a commercial rent to their Pension Fund for the use of the property it becomes an equally tax efficient way of making additional contributions to their Fund. Rental income will not be taxed, but paid directly into the SIPP, either to be invested elsewhere or to pay off a mortgage if one is outstanding. Whilst the mortgage business in Spain continues to evolve, somewhat lagging behind its UK counterparts, we need to consider the means by which mortgage funds will be made available to the SIPP Trust.

In the UK, the revision to the Pension rules will result in a change to the nature of the risk for the mortgage lender who will become more reliant on the rental income and value of the property and less reliant on personal guarantees given by the Pension Fund Trustees. In fact, it is likely that most Trustees will want the property to be managed independently by a professional letting agent and the lender will be particularly concerned over the quality of that management. When reaching their credit decisions, mortgage lenders will need to satisfy themselves as to the SIPP Trust's ability to manage properties effectively. They will need to look at the condition of the local rental market, the potential rental income that can be derived from the property and its value in a forced sale situation.

There are suggestions that people seeking holiday homes abroad, may find that it is the SIPP administrators rather than the Inland Revenue who prove an obstacle to holding properties within a pension. The Trustees may need to deal with foreign tax authorities and it will be necessary for locally based advisors to provide the Trustees with professional assistance to alleviate the SIPPs administrators concerns when confronted with foreign tax issues. This will of course depend on whether the pension provider (the concept of SIPPs will disappear after A-day) is still required to act as Trustee and therefore legal owner of the asset. The Trustees argue that this could create an oppressive burden on them. Reliable due diligence as to the quality, value and legal status of the property will be essential to the Trustees proper discharge of their obligations.

Questions exist, as to the means by which the foreign property may be held. Many civil law jurisdictions do not recognise the Trust concept, and potential legal problems may only be fully understood with the help of foreign lawyers. Will it be held directly by the Trustees or via an owning company or similar? For example, a property in Spain may have to be bought by a company that holds the shares for investors thereby satisfying the main aim of cutting down on administration costs.

If the demand for information from the UK, which has already been identified, is matched by demand for appropriate properties post April 2006, the Spanish market is set to be prime target for this new breed of investor purchasers.