UK Pension Savers To Get Property Tax Boost From 2006

by Robert Lee, Tax-News.com, London

12 January 2005

In what has been described as one of the largest tax giveaways to higher rate earners in the UK for years, savers are expected to build up some £11 billion in pension contributions when new rules allow investors to buy property as part of their retirement savings, according to The Times.

Under changes to pension rules from April 2006, individuals will be able to purchase residential property, such as a buy-to-let investment, as part of a personal pension, enabling them to gain a major tax advantage.

Although rental income from a buy-to-let property will need to be reinvested in the fund and used to pay off a mortgage, it will be exempt from income tax, and gains from the sale of the property will also be free from capital gains tax.

Furthermore, contributions made to a pension plan in order to buy property will receive tax relief at 22 pence for every 78 pence invested, and higher rate taxpayers will receive an additional 18 pence, according to the Times.

“This is the biggest tax giveaway for higher earners that I have ever seen. Frankly, I find the proposals astonishing from a Labour government,” Ros Altmann, an independent adviser to Downing Street, remarked in the report.

In preparation for the change in the rules, experts say that investors are already boosting pension contributions, and it has been estimated by John Lawson of insurance firm Standard Life that savers will use both existing pension assets and new contributions to purchase buy-to-let properties worth between £7 billion and £11 billion from April next year.

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