Holding residential property as a pension investment is becoming easier as more developers and investment managers offer exempt property unit trusts – or Eputs. These are little-known collective investment schemes that can buy into houses and flats, but still be held within self-invested personal pensions (SIPPs).

Eputs are a good option for SIPP holders looking to turn residential estates into pension investments. Although managers approved by the Financial Services Authority (FSA) must bear responsibility for running Eputs, the funds are treated as unregulated under UK law. Dividends therefore remain untaxed and underlying assets are not subject to capital gains tax when sold.

But Eput do have their drawbacks. Advisers emphasis that they tend to be costly and difficult to arrange. There are no limits placed on a scheme’s size, but the commitment of at least ten Sipp operators is required as no one individual can own more than 10% of the fund. In addition, an Eput portfolio must consist of a minimum of three secondary properties, with none accounting for more than 40% of the fund’s value.

One-time set-up charges and management fees vary depending on the Eput’s structure and size.

Consortium’s Hobbes estimates that the average annual costs of running an Eput range between 0.2%-1% of the value of the fund. Managers then tack on additional fees for purchasing property.