Chancellor accused over property tax breaks
The chancellor has been accused of performing an embarrassing “climbdown” after he scrapped plans to give tax breaks to people investing in property as part of their pension.
Under new rules, savers could include property and other collectible assets to their self-invested pension plans (Sipps), and receive tax relief on these investments.
It was intended to persuade people to save for their old age, but in his pre-Budget speech yesterday, Gordon Brown said the measure would not be introduced next year as planned, and would be scrapped altogether.
The Liberal Democrats accused the Treasury of “arrogance and ignorance”, saying the U-turn had come “desperately late” and would prove costly.
The tax breaks were due to come into force as part of the raft of ‘A-Day’ reforms next April, and would have enabled savers to add properties and assets such as art collections worth up to £215,000 to a Sipps – they would then receive a full tax rebate on their initial purchase.
Property companies and pensions advisers had touted this as a major coup for both savers and property investors, with experts predicting that it would provide a £15 billion boost for the property sector.
However, the Treasury has now changed its mind, following concerns the system would be exploited by wealthy investors who could use it to make large profits on second homes for immediate personal profit rather than to build up retirement income.
A statement from HM Revenue and Customs yesterday read: “From ‘A-Day’, the government will remove the tax advantages for investing in residential property or certain other assets such as fine wines, classic cars and art and antiques from registered pension schemes which are self directed.
“This is to prevent people benefiting from tax relief in relation to contributions made into self-directed pension schemes for the purpose of funding purchases of holiday or second homes and other prohibited assets for their or their family’s personal use.”
But Lib Dem pensions spokesman Matthew Oakeshott questioned why it had taken so long for the government to address the loophole.
“Why did the Treasury ignore repeated warnings over the last two years?” he asked.
“It is likely that many thousands of individuals will now be out of pocket having set up Sipps believing government assurances,” he said, adding: “The costs to the industry are also likely to be significant.”
