Property Excluded from Sipps

The government has scrapped the tax-free inclusion of property into self-invested pension plans (SIPPs) amidst fears it would be exploited by wealthy investors.

The measure would have allowed people to place property and other assets worth up to £215,000 into a SIPP and receive a full tax rebate on their initial purchase. It was due to be introduced as part of the A-Day reforms next April.

Property companies and pensions advisers had been promoting its merits to savers and property investors as a means to build up retirement income – and for wealthy investors, the opportunity to make money on their second homes.

Experts predicted that it would provide up to a £15 billion boost for the property sector.

However, the Treasury has now reversed this decision after concerns that the scheme would prove too much of an easy profit, making exercise for wealthy investors.

"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," HM Revenue and Customs (HMRC) said in a briefing note which accompanied yesterday's pre-budget statement.

It added: "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."

The announcement all but removes the tax advantages initially offered by the proposed rule changes, as second-home buyers will not now receive any form of rebate.

However, once inside the plan, any rental income derived from the purchase will be exempt from income tax, meaning that long-term investors may still be able to benefit from inserting property or collectables into a SIPP.

Savers who insert commercial properties into pension plans will also still receive a full rebate.