Self invested personal pensions
The government on Monday closed the door to investors hoping to get tax relief to put their holiday homes and buy-to-let properties in their pensions schemes from April next year by saying it would no longer be allowed.
From April 6 next year, under A-day, pension laws were to be relaxed allowing those saving for their retirement much greater freedoms over what they could hold within their pensions. The rule changes were expected to lead to a boom in self invested personal pension schemes (Sipps), pensions with wide investment freedoms.
Residential property and exotic assets, such as fine wines, classic cars and even stamp collections were among the assets which were expected to be allowed to be held in pensions after April 6 and qualifying for income tax relief up between 22 per cent and 40 per cent.
However, in a technical note accompanying today’s pre-Budget report, the government announced it would remove the tax advantages for residential property and other assets, such as fine wines, art and antiques for schemes which are self directed. The move will remove any tax advantages of holding residential property directly or other exotic assets within a Sipp.
The government said the move was aimed at “preventing people benefiting from tax relief in relation to contributions made into self directed pension schemes for the purpose of funding purchases of holiday or second homes and other prohibited assets for their or their family’s personal use.”
Tax experts expressed surprise at the government’s U-turn. “This is a complete turnround. It is extraordinary,” said Mike Warburton, tax partner at Grant Thornton.
Simon Philip, tax partner at Deloitte said: “The dream is over for those hoping to enjoy tax subsidised wine drinking and horse racing but it was fun while it lasted,” said .
Avoidance schemes
The government also closed loopholes regarding avoidance schemes for capital gains, inheritance tax and the transfer of assets abroad.
Investors looking to reduce their tax liability will no longer be able to offset capital gains by using losses on disposals of certain insurance policies, including capital redemption policies.
Gordon Brown also clamped down on schemes designed to avoid inheritance tax, including the use of second hand interests in foreign trusts and further tightening up on the recent “pre-owned assets” income tax charge. Inheritance tax planning schemes, involving pre-owned assets, whereby homeowners sought to pass on property to heirs tax efficiently while continuing to live there, have already been curtailed by the government.
Action was also taken to stop UK residents avoiding tax by exploiting offshore companies and trusts.
Unclaimed assets
The chancellor announced further details on plans to give dormant account monies to good causes, such as youth schemes.
He said the government and the industry had agreed that any bank or building society account in which there had been no customer activity for a period of at least 15 years would be classed as an “unclaimed asset”.
Initial searches by the industry suggest that several hundred million pounds may currently lie unclaimed.
The government said funds from these assets would be reinvested in the community, particularly in youth services in deprived areas.
Adrian Coles, director-general of the Buildings Society Association, said: “The BSA is determined to ensure that as much money as possible is reunited with customers. If a scheme is considered necessary to deal with the remainder, it is important that a realistic definition of dormancy is used and that smaller institutions are able to support local charities. We are pleased the Government has taken these points on board. However, much of the detail still needs to be resolved and we will be looking to work constructively with the Treasury on issues such as identifying unclaimed assets.”
