The party’s over
Where did it all go wrong? Rosie Murray- West reports on the disaster of withdrawing houses from Sipps, and would-be first-time buyer Georgina Harris thanks the Chancellor for nothing in his expansion of shared-equity schemes
If something looks too good to be true, it probably is, which is why the shock decision by Gordon Brown to ban residential property from self-invested personal pensions (Sipps) this week shouldn’t have been such a surprise.
He had been fl irting with it for a while, asking for extra consultation from the Treasury, listening to whingeing from Defra and various rural MPs who were worried about the effects on first-time buyers.
Then there was the continual wait for tax guidance which meant that, although the property industry had heavily geared up for Sipps, they still weren’t sure exactly how the scheme was going to work.
One thing is for sure, after Monday’s pre-Budget speech, it isn’t going to work at all. With one tiny phrase, the Chancellor wiped away all hope of people putting their holiday homes or buy-to-let investments into pension plans and getting what would have effectively been a 40 per cent discount on the purchase price.
Owners of country cottages and those who had already set up Sipps (at a cost of about £500) in the hope of putting residential property into them are particularly furious, and the property and fi nancial services industries say the U-turn has cost them hundreds of millions of pounds.
Since there had been confident talk of the “Sipp effect” boosting the sluggish housing market, and some investors had even bought off-plan property in their Sipps in advance of rule changes, Mr Brown’s decision has caused wailing and gnashing of teeth almost universally.
Even those who were worried about the actual change in legislation are less than pleased with the lack of time they have been given to perform a turnaround. “A-Day”, when the rules were supposed to come into effect, is on April 6. Andy Bell, of Sipps service A J Bell, says that he always had concerns about people putting residential property into Sipps. “We are frustrated, because we told the Government three years ago that there were problems with this and they thought they knew better. The Chancellor came to his senses at the 11th hour.”
Although tax lawyers and advisers are still poring over the detail, the change seems to mean that no residential property or “exotic investments” (such as wine) can be held in your pension plan without incurring tax. The only way investors are going to be able to hold property is through the commercial sector, or through funds including new Reits (real estate investment trusts), when they are set up.
This has left eager Sippers with a number of problems. Keith Boniface, of advisory service Sipps2006, has clients who have bought half-built homes with their Sipps, and
are now in limbo, or
facing a hefty tax
bill. “I’m not
happy,” he says.
the fact that a
property is not
“residential” until it
has a certificate of
habitation. As long as the homes were not completed and certified until after ADay, when the rules were to change, they would have not incurred a tax charge.
Now, it appears they will have to sell them out of the pension plan quickly. Some people may buy them personally from the plan, but nevertheless there are likely to be scores of half-built houses for sale both here and abroad (Cyprus and Bulgaria are said to have been popular).
ven those who haven’t
committed to a property
will be out of pocket due to the Chancellor’s decision. Mark Garner, commercial director of the National Landlords’ Association, ought to know a bit about property, but he has been caught out. He set up a Sipp and planned to transfer several stakeholder pensions into it and buy property. He describes the Chancellor’s decision as “disgraceful”.
“Many hard-working people like myself have spent a lot of time and money preparing for the A-Day changes. The Government should thoroughly think through any proposed changes to help people in retirement before they announce them,” he says.
Property developers who had begun to aggressively market homes as Sippsfriendly may also face problems. The change was expected to reactivate the buy-to-let market; this is now unlikely to happen.
David Melhuish, a senior policy officer for the Royal Institution of Chartered Surveyors (RICS), says that the organisation had predicted a 3 to 4 per cent uplift in sales of property due to Sipps. He says that although the change would have been slight overall, it was likely to have an impact on holiday home hotspots such as Devon and the Yorkshire Dales.
“It’s quite an astonishing U-turn and I think it is very surprising. A lot of people in the investment industry had been doing a lot of work.” ÞFor more information on the Sipps U-turn, see Your Money.
The bubble that burst ahead of its time: one Sipps adviser complains – ‘ We told the Government three years ago that there were problems with this and they thought they knew better’