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

The Daily Telegraph - Property - - Browned Off -

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.

His clients

were ex­ploit­ing

the fact that a

prop­erty is not

classed as

“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.

E

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’

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