Wednesday, August 10, 2005

Gordon's new SIPP rules

The confirmation of borrowing rules on Sipps post A-Day by the Revenue & Customs (HMRC) have been described as ‘tough’ and ‘penal,’ by the industry.

Sipp specialist A J Bell, has attacked the Revenue’s confirmation of the refinancing of a Sipp loan post A-Day to fall under new borrowing, and therefore under the new rules.

A J Bell says this could leave thousands of Sipps borrowing cash under the pre A-Day rules, where the maximum borrowing is 75% of cost of property; in order to aid commercial property purchase, stuck with uncompetitive loans.

Article from Gareth Vorster

Moreover, any borrowing related to in-specie transfer, or transfers consisting of assets rather than cash, from one Sipp provider to another, will also undergo a new test against the 50% limit.

A J Bell believes this blocks the ability of many Sipp members to change their Sipp provider.

Andy Bell managing director of A J Bell Group, says: "This is very penal. Unless some disgruntled Sipp clients change Sipp provider before 6th April 2006, they will be locked into their Sipp provider until their loan is reduced to 50% of the net asset value of the Sipp.�

He argues Sipp clients will also not be able to refinance any pre A-Day Sipp loans unless the new loan is within 50% of the net asset value of the Sipp, which would lead them to have to fork out thousands of pounds in overpaid interest.

Bell adds: “Unlike the majority of the new pension legislation, the new borrowing rules have not been thought out properly. Any sensible representations and suggestions we have made have been clouded by the desire of government to dampen down the overhyped impact that Sipps will have on the residential property market.�

Media relations at the HMRC, Patrick O'Brien says: “The borrowing rules will apply equally to all registered pensions from the 6 April 2006. Any new borrowing after A-Day will be tested against the new rules.�

The Revenue says for members wanting to transfer funds from one scheme to another, they will have to ensure the borrowing rules are met by the new scheme.

The HMRC also said last week: “Sipps and their advisors will have had a full two years notice of the legislation by A Day, which is clearly more than adequate to plan transactions so that they are not hampered by the rules.

Commenting on the confirmation of borrowing rules, Andy Taylor, individual pensions marketing manager at Scottish Life , says: “This seems harsh if you are not increasing the amount you are borrowing, and you are only trying to obtain the best value for the scheme.�

He says the same can be said for in-specie transfer, as an individual may only want to switch so as to reduce charges or increase the flexibility of the contract.

He adds: “Given the likely expansion of the Sipp market in the next few years, we can expect many new products to be launched. This will probably increase the flexibility and quality of the products on offer and reduce the costs of running a Sipp. So even acting now is no guarantee that people with Sipps won't fall foul of these new rules at some stage in the future.�

John Moret. director of sales and marketing at Suffolk Life, says: “The HMRC's tough line on existing borrowing seems unreasonable although not unexpected.�

Moret says while the reduction in limits for new loans may well be accepted in order to obtain greater investment freedom after April next year, the imposition of the new limits proposed is ‘arguably an unfair and retrospective alteration’ of the terms on which many individuals have entered into commercial property transactions.


At 12:06 PM, Blogger Adam benson said...

When you are looking for SIPP pensions it is important to consult with a specialist independent intermediary to ensure you get the type of plan.


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