SIPPs u-turn spoils City’s Christmas

The chancellor’s shock u-turn over allowing residential property to be used
in self-directed pensions could leave City directors scrambling to find new ways
to reduce the tax hit on Christmas bonuses.

Monday’s pre-Budget report saw Gordon Brown abandon plans to give tax breaks
on investments in residential property as part of self invested personal
pensions. In his speech, the chancellor said he wanted to stop the ‘misuse’ of
such SIPP schemes to purchase second or holiday homes, following fears that the
take-up could fuel house price inflation.

But the change of heart has left City directors with little time to sort out
the destination of their bonus, and few options of where to put it.

Alistair Kendrick, a partner at Wilder Coe, said that many directors had been
contemplating property investments in SIPPs as an alternative destination for
bonus payments since the use of overseas trusts to reduce tax exposure had been
largely closed down.

‘At a stroke this disappears,’ he said. ‘This leaves many directors with 31
December year-ends struggling to come up with any novel ideas of how to minimise
their tax.’

Investments in antiques or historical works of art were potential other areas
for the bonuses to go into, he suggested. The move may also add further problems
to the impending crisis of pension investments.

Phillip Wood, director of personal finance planning at
PricewaterhouseCoopers, said the move was likely to mean that ‘not so much money
goes into pensions in the next few years than perhaps would have done if it
could have been invested in property’.