Pre-Budget 2005: Brown cans residential SIPPs

In a massive turnaround, Gordon Brown has removed residential properties from the upcoming changes to pension rules.

SIPPs and all other forms of self-directed pensions will be prohibited from obtaining tax advantages when investing in residential property and certain other assets, such as fine wines, from April 6 2006.

This action will ensure that tax relief is only given to those whose purpose in making the contribution is to provide themselves with a secure retirement income.

Action will also be taken to prevent abuse of the rules for tax-free lump sums from April 6 2006.

The legislation will remove tax advantages where lump sums are recycled back into funds in order to generate artificial levels of tax relief.

Iain Anderson, director of Cicero Consulting, says: “I think the increasing headlines on higher net worth using SIPPs as a tax break or property investment has clearly concerned parts of the parliamentary labour party and the chancellor has decided to act.”

The report goes on to say though: “However, the Government remains committed to encouraging investment in a range of assets as part of pensions saving and is therefore minded to SIPPs to invest in genuinely diverse commercial vehicles that hold residential property, such as the proposed Real Estate Investment Trust model.

“The Government will not hesitate to take action it it becomes clear that people are trying to use collective vehicles to get around the rules for prohibited assets.”

However the report