The Government has backed away from proposals to allow pension schemes to invest in commercial properties that are converted for residential use.
In the Budget, the Government said it was considering changing investment rules to allow pension schemes to invest in unused space in commercial properties which may be converted to residential use.
Budget documents said: “The Government will explore with interested parties whether the conversion of unused space in commercial properties in high streets and town centres to residential use could be encouraged by amending Investment Regulated Pensions Schemes rules.
“Any amendments would need to be consistent with sound public finances and the Government’s wider pensions strategy.”
However, HMRC has now contacted pension providers confirming it will not press ahead with the idea.
In a letter to the Association of Member-directed Pension Schemes, HMRC says: “Our findings were that the benefits of changing the tax rules in this area, in terms of encouraging conversion of unused space in commercial properties in high streets and town centres to residential use, would be marginal at best.
“The Government’s conclusion was these benefits would not outweigh the costs of complicating the tax code and the risk of reduced tax take that would result from changes to the tax rules at a time when the Government is looking to reduce the deficit.
“The Government has therefore decided not to make any changes to the existing rules applying to residential property and Investment-Regulated Pension Schemes at this time. As with all areas of the pension tax rules, this policy will be kept under review.”
Amps chairman Andrew Roberts says: “The Government has concluded that allowing Sipps to convert unused commercial premises to residential use will not provide much additional housing stock and so does not want to spend time introducing complex additional rules.
“However, it is actually a missed opportunity to clarify the legislation that defines when a property is designated as residential.
“I would hope that Government can now consider the impact of empty business rates on pension scheme property investments and whether that policy is achieving its aims.
“Paying rates on void commercial property can place a strain on schemes especially where there are no ongoing contributions. With reducing pension allowances, this is now often the case.”