Published on : Tue, 06 Dec 2005 11:12GMT
by : Lisa Pitt

LONDON - Chancellor Gordon Brown produced a surprising U-turn on the SIPPs provisions by scrapping them altogether claiming that there was plenty of scope for misuse of the same. This means that pensioners can no longer put second or holiday homes, wines and other valuable assets on their self-invested pension plans.

Brown announced that the scheme was no longer valid in his pre-budget speech before the Parliament yesterday. The financial services industry and the pensioners had been planning feverishly for the so-called A-day and it looks like Brown has thrown cold water over those plans. In his one-minute talk on the topic, Brown said that he was taking this step 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."

Many investors were rightly disappointed with this 11th hour mess. In the initial proposals, taxpayers could buy a £100,000 property for as little as £60,000 provided they committed it to SIPPs. This meant that the Government was providing income tax relief to the tune of 22-40 percent for these pensioners. Fears were abounding in the market that these steps would only benefit higher-end taxpayers. Additionally, analysts had thought that the proposals were an open invitation to scamsters.

Though several firms did welcome the scrapping of the tax breaks, there was anger directed at the Treasury for holing back the announcement until this late hour. "From the moment the Treasury said its simplification rules would allow investments in anything from residential property to fine wine and stamps we said it was crazy. Ministers wouldn't listen," said Ros Altmann, a former pension’s adviser to the Prime Minister. He added that the latest move was mired in common sense.

But John Lawson, the head of pensions policy at Standard Life, which was the biggest SIPP provider, said that this late move would cause a lot of heartburn to those who had already made arrangements to buy property, “Savers and pension providers have been planning for the new rules on property and pensions for three years - this is an utterly appalling way to treat people," he said.