Just one UK insurance company has taken in GBP1bn in advance of new SIPPS rules next year, leading to claims that the Treasury may lose up to GBP4bn a year of tax revenue because of the new regime.
Insurer Standard Life revealed this week that wealthy savers had invested more than £1bn of tax-free cash in its new-style personal pension plans over the last nine months in preparation for the new rules.
Changes due to be brought in on 6th April 2006, now known as ‘A’ day will allow SIPPs (Self-Invested Personal Pensions) to acquire residential property and buy-to-let property as pension investments. Buying homes or properties abroad will be allowed, as will the purchase of cars, antiques or yachts. It's also possible for a pension fund to purchase a commercial property, which it can then lease back to the beneficiariary's business.
SIPPs were originally approved in 1989 when the Pension Schemes Office issued Memorandum 101, giving guidance on what assets a SIPP could invest in; but the scope of the scheme has now been greatly expanded.
On disposal of a SIPP asset, capital gains on the property are exempt from capital gains tax; and retained income from an asset while it is in the SIPP is also tax-free.
Removal of the upper limit on tax-free pension contributions from 2006 has sparked fears that the changes, which were meant to open up opportunity for lower earners with under-provided pension schemes, will instead open up a bonanza for higher earners, who are expected to buy holiday homes and buy-to-let properties.
Standard Life says it expects demand for Sipps to remain high in the run-up to April, and said the Treasury "deserves a great deal of credit" for simplifying the pensions tax system.
One possible result of the new SIPPs regime may be to prolong the UK's housing boom, which is otherwise in danger of petering out or even of ending in a messy collapse. The Treasury may have predicted this - but that was before tax revenues came under pressure . . .
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