Could I take a mortgage on my house to buy a Sipp?

Q I'm a 40-year-old married teacher with two kids. I earn £40,000 a year and my partner earns £35,000.

I own my house outright (no mortgage) and it's valued at approximately £400,000. If I take out a mortgage against the house I already own, in order to purchase a Sipp and then use this to purchase a buy-to-let property, will this enable me to retire in 15 years' time?

SS

A My first reaction to your question was: "why on earth would anyone who has access to an inflation-linked final salary pension scheme which allows them to buy added years to increase the chance of retiring early - as teachers do - want to swap such certainty for the double-whammy investment risks of fluctuating interest rates and property prices?'.

But maybe I'm biased because my father retired early on a teacher's pension and seems to have enough money to enjoy his retirement. I also remember the great personal pensions mis-selling scandal when lots of people - many teachers included - were, wrongly as it turned out, persuaded to give up their final-salary pensions in exchange for the excitement of investing in the stock market and taking a chance on annuity rates (which have been in steady decline in recent years).

In the short-term at least, there are also practical difficulties in doing what you propose. Although the tax rules will be relaxed once investment in residential property through a Sipp (self-invested personal pension) becomes an option in April 2006, they won't disappear altogether. The most you will be able to pay into a pension each tax year will be 100% of earnings up to a maximum of £215,000.

Given that the maximum that you will be able to invest in a Sipp in the 2006-7 tax year is £40,000 (including tax relief of £8,800) and given that the average price of property in the UK is about four times that much, it's unlikely that the money in your Sipp would be enough to purchase a buy-to-let property.

But even if you could, you have to remember that the tax rules say that any rent from the property has to go into the Sipp. It can't be paid directly to you so you would have to find some other way of funding the interest payments you would have to make on the mortgage that you initially took out to invest in the Sipp.