Brown’s SIPPS move surprises industry

Chancellor Gordon Brown has scrapped personal pension tax breaks that would
have allowed investors to purchase holiday homes using their retirement pension
‘pots’ despite repeated claims by Treasury ministers that this was unlikely.

He has imposed a ban on Self Invested Personal Pensions being used to
directly invest in residential property – and extended the ban to include fine
wines, classic cars, art and antiques. The ban extends to all self-directed
pension schemes.

Making Pensions Tax Simplification complicated at a stroke, the Treasury
announced legislation would remove all tax advantages from holding prohibited
assets with an unauthorised member payments charge designed to recoup relief
attributable to the asset concerned.

The crackdown will hit all disqualified investment from midnight on Monday (5
December), with property acquired before then only exempt if unimproved or
renovated under binding contracts executed before the deadline.

Brown’s statement referred only to ‘the misuse of SIPPS schemes to purchase
second homes’. He made no mention of the extension of the ban to other ‘tangible
moveable assets’ to prevent abuse through personal consumption.

SIPPS will still be allowed to invest in ‘genuinely diverse commercial
vehicles’ such as a Real Estate Investment Trust that hold residential property
or other prohibited assets.

The crackdown follows warnings from MPs in holiday areas like the Highlands,
the Lake District, Snowdonia and Devon and Cornwall that abuse of the perk would
send property prices surging even further beyond the reach of local buyers.

An associated HM Customs & Revenue paper announced the closure of a
loophole in the legislation applying inheritance tax to pre-owned assets that
could have let through cases where an owner transfers their asset but continues
to enjoy it as the beneficiary of a ‘reverter-to-settlor’ trust.

The move ends schemes that exploit an existing IHT exemption that applies to
trusts which revert to the settlor or spouse or civil partner when a
beneficiary’s interest terminates.

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