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SIPPs U-turn Shock

SIPPs U-turn Shock

Category: Business

Updated: 31/10/2008
First Published: 10/08/2006

This article was correct at the time of publication. It is now over 6 months old so the content may be out of date.

Gordon Brown's announcement that residential property will not be allowed as a SIPPs investment has come as a major surprise to the industry. After months of preparation the decision to scrap the project has come at the eleventh hour.

Keith Astill, managing director at UCB Home Loans, the specialist buy-to-let arm of the Nationwide, said: "If it was regarded as a bad idea, it should never have been proposed in the first place. I'm a little perplexed about why we have had almost two years of announcements regarding the rule changes allowing people to put residential property into SIPPs, and then four months before it comes into force the whole project is shelved." He continued: "This will be a financial blow to those people who have either set up a SIPP in readiness, or who have paid deposits on off-plan flats so that they can put the property into their pension in April."

But other believe although the timing of the move hasn't been helpful, the decision to scrap the plans has been the right one. Jerome Melcer, Actuarial director at BDO Stoy Hayward commented: "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.

"Having said that, this is where we should have been heading all along. The Government has finally realised that investment in residential property created enormous complexity not just for themselves but also the pensions industry and now they've stripped it out entirely."

However, those determined to continue down the SIPP path will have other options open to them. Robert Walters, Investment Director at BDO Stoy Hayward explains: "Individuals can still buy properties that have some residential content. For example a budding entrepreneur could use a SIPP to buy commercial property with a residential element (such as a flat above) which would be prohibited under current rules. This also ties in with the REIT (Real Estate Investment Trusts) model." Final details of criteria for companies wishing to apply for REIT status will be announced in the 2006 Budget.

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