Sipp changes in 2006

Proposals to allow pension savings to be used to buy second homes came under fire yesterday.

The altercation centred on the change in plan to pension rules in 2006. The most talked about change is one that allows people to invest money from their pensions into residential property.

The proposed changes to Self Invested Personal Pension (Sipps) will mean wealthy property buyers could reap sizable tax breaks, possibly triggering a sharp rise in house values in rural areas. The result of this could force locals out of the UK property market.

The attack on Sipps was lead by journalist Elinor Good, who presently chairs the Government’s Affordable Rural Housing Commission.

Good said the current proposals by Gordon Brown would be contrary to the plans to keep house prices down in the UK.

The change to pension rules would be especially attractive to top-rate taxpayers, who currently pay forty pence to every pound they earn over £32,400 per year. Those with a Sipp could then let an individual decide where to invest their pension pot.

Due to pensions being a tax-free investment, as of April 2006, one could use their pension fund to buy a second home and have a staggering 40 per cent of the cost paid by the taxman. Put simply, for every £60 a high earning taxpayer adds to the fund, the Government would add £40 a part of the income tax refund. Naturally, this allows Sipp investors a key advantage in the property market.

Date: 26.08.05