In a technical note accompanying the Pre-Budget Report made by the Chancellor Gordon Brown this week, the government announced it would remove the tax advantages for residential property and other assets. The tax break, which would from April 2006 have allowed investors to put their properties into a SIPP, was closed after the government said it was being abused by the tax-avoidance industry.
Andy Frankish, managing director of Mortgage Talk, highlighted the extent of the u-turn, expressing the decision as a setback but not the end of the world. He said: “We have spent time looking at opportunities surrounding this area and there was definitely a market especially in new-build but it seems the Chancellor had created a rod for his own back.”
Keith Astill, managing director of UCB Home Loans, said: “If it was regarded as a bad decision, it should never have been proposed in the first place. The move will not have any major effect on the long-term health of the buy-to-let sector; how-ever it will be a disappointment to those who were hoping to include residential property within their SIPPs.”
Matthew Wyles, group development director at Portman Building Society, commented: “It never seemed very logical that already hard-pressed first-time buyers should have to compete with investors armed with significant tax advantages. SIPP investors will still be able to buy into Real Estate Investment Trusts (REITs) which will have the advantage of providing a more diversified and structured exposure to property.”
Ray Boulger, senior technical manager at John Charcol, said the u-turn was an over-reaction. “It appears his prime concern is the ability by those he deems rich to put second homes into a pension pot. Therefore, we would strongly advocate a second look at the possibility of allowing buy-to-let investment property into a SIPP.”
Jerome Melcer, actuarial director of BDO Stoy Hayward, was more scathing of the decision. He said: “Gordon Brown has made an enormous u-turn on SIPPs that has wasted thousands of hours of professional time. An entire industry has been set-up to deal with property-based SIPPs and now it’s all been canned.”
Upon the announcement Mortgage Introducer was inundated with responses from intermediaries. Here are just a sample:
“This hasn’t really come as much of a surprise to me. It’s just typical of this Labour government. Just like they changed PEPs (remember them) to ISAs then reduced the benefits even further. They can’t stand individuals benefiting at the expense of the Exchequer. New Labour – yeah right.”
“The Chancellor has had two years to get his sums right. This last-minute panic change has wasted a lot of advisers’ and providers’ time and efforts, leading to clients being let down and shows that he is incompetent. It’s time to go Gordon.”
“Typical Gordon Brown – he wants every pensioner and ordinary working person not to have any chance of having a good pension. He wants every pensioner to be on means-tested benefits. Any chance for the ordinary person in the street to have a bit of independent money and he’ll kill it off stone dead. This from a man with how many houses? One of which is paid for by us, the taxpayers, through MPs’ generous allowances, not to mention their own platinum pensions. Hypocritical or what?”
“Typical of the government. Ill-thought out policy, knee-jerk reactions from start to finish; pension reform prior to publication of one of the biggest pension enquiries ever. Simplification by complication and bureaucracy, and only a budget of £500 billion to run the country.”
