Government changes tack on SIPPs

One of the headline features of the forthcoming 'A-Day' pensions legislations in April is the very wide expansion of items which can be held in registered pension schemes, in particular residential property and certain other assets such as fine wines.

This was widely thought to be a potentially valuable tax break, whereby high earners - who are subject to the top rate of tax at 40% - could buy a second home and claim a 40% rebate on the value of property (up to a maximum of £215,000) bought with their own cash using a Self Invested Personal Pension (SIPP).

However, in the Pre-Budget Report, the Chancellor has announced that SIPPs will not be given immediate tax relief for investments in residential property.

Instead, there will be different new tax rules for residential property and other ‘prohibited assets’ (such as classic cars, fine wines, or works of art) bought through a SIPP.

The Treasury has said that the aim of the new policy is to ensure that tax reliefs would only given to people genuinely using the SIPP to provide themselves with a pension.

However the Government will encourage SIPPs to invest genuinely in indirect holding of residential property through vehicles such as the proposed UK Real Estate Investment Trusts (UK-REITs).

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