Tax clampdown likely to affect some SIPP and SSAS investments, it is claimed

Written by Ray Clancy

Wednesday, 24 February 2010 09:41

A clampdown by the UK tax authorities means that loans from pension funds secured against residential property will now be regarded as ‘unauthorised’ and face being taxed.

It means that SIPP and SSAS clients may need to re-examine any loans secured against taxable property and it is unlikely to be the only change coming up.

New HMRC regulations treat a scheme as having an interest in taxable property if it ‘holds the property or any estate, interest, right or power over the property’. Previously, the taxman did not consider property as security on a pension loan as ‘having an interest’.

However, under the new rules acquiring an interest in taxable property means a pension scheme is treated as having made an unauthorised payment. Initially, the value of the payment would be related to the relatively low fees involved, meaning any charge would be minimal.

But, if the loan was to default and the scheme enforced a charge, then this would lead to additional interests in the property. This would generate unauthorised payment charges based on the value of the property, which could be substantial.

According to Mary Stewart, marketing director of Hornbuckle Mitchell, the change in rules is the next stage in a wider crackdown by HMRC on residential property holdings within SIPP and SSAS.

The changes mean residential property and tangible moveable property are no longer suitable security for pension scheme loans, which could limit the options available to some investors.

‘HMRC is cutting back on the ways you can get exposure to residential property through a SIPP or SSAS. This will not be an issue for most clients, but if an adviser believes there could be taxable property exposure in their clients’ pensions then they should take action as soon as possible,’ explained Stewart