The pension industry is currently gearing up for big changes to Self Invested Personal Pensions (SIPPs) next year.
When A-Day arrives on 6th April, it will mean that those with SIPPs will be able to put a wider range of assests and investments into their pensions to gain relief on them from the tax man. Although there are many things that could possibly be put into your pension, such as works of art, racehorses, jewellery or even wine, much of the current buzz surrounding A-Day is understandably concentrating on the holding of property in SIPPs.
Although adding property to your pension pot may sound attractive, most experts believe that you will require a large sum already invested in your pension in order to add a property to it – and the rules for owning other assets in your SIPP are going to be complicated, meaning that it would be unwise to do this without advice; if you are to go about it in the wrong way, you could find yourself facing a hefty tax bill.
It’s also worth bearing in mind that the Inland Revenue is still yet to finalise the details of A-Day, so taking action on the information that is already out there might be unwise until all the facts are known – the Inland Revenue is itself having problems understanding the rules.
Also, SIPPs are, amazingly, unregulated at the moment, so in effect anyone can sell them (and for them to come under regulation could take a couple of years, leaving a “gap year” for mis-selling to take place). According to an article on the Telegraph website, several property developers have already started advertising the benefits of SIPPs, without pointing out the details that could mean they are not suitable for some:
One recent advert publicised a £149,995 property as having an “effective” price of £89,995 thanks to the 40 per cent tax relief given to higher-rate tax payers on pension contributions. The advert failed to disclose any potential downsides, but added “seven years hassle-free returns”.
With the government increasingly looking for ways to make the average “man on the street” invest in his/her pension, it would have been good to see these new rules benefitting more than just the top earners. But the nature of this SIPP revolution appears to benefit only those who are already heavily invested into their pensions, and have the means at their disposal to navigate the SIPP minefield.