06 December 2005

No Sipps for residential property?

The government has provoked howls of outrage from the financial services industry after slamming the door in the face of investors hoping to shelter residential property in Sipp pension plans from next April.

In a huge U-turn the Treasury has apparently realised the potential huge loss to the Exchequer posed by the A-Day pension reforms. This year's Budget raised the prospect of residential property and alternative assets such as fine wine being eligible for Sipps (self-invested personal pensions). However, the government says it now wants to "tighten the rules" to prevent "potential abuse".

"All those people who thought they could transfer their residential property into their Sipps will have to think again," said Philip Wood, director of personal finance planning at PriceWaterhouseCoopers.

Brown referred in his speech to Parliament only to "the misuse of Sipps schemes to purchase second homes" in reference to the Treasury's latest brace of anti-tax avoidance measures.

However, the wider scope of the clampdown was revealed in a technical note from the Inland Revenue. Investment in residential property via a pension will only be allowed indirectly, for example by a fund. This fits in with the government's plans to introduce real estate investment trusts. By apparently making buy to let and holiday homes ineligible it could save the Exchequer up to 4 billion pounds in lost revenue.

Financial advisers were incensed by the sudden change of heart, although it is possible that there has been a mistake in drafting the technical note and that the Revenue really means to prohibit assets that are held for personal use.

Full article here.

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