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Govt set to change Sipps policy on remortgages

HM Revenue & Customs will allow people with mortgages above 50 per cent within a Sipp to restructure or re-mortgage without suffering a tax penalty, according to the Association of member directed pension schemes.

The decision follows heavy lobbying from AMPS and Sipp providers who claimed A-Day rules were trapping investors in high interest rate mortgages.

A-Day changes reduced the maximum loan to value for properties within a Sipp to 50 per cent and introduced a tax charge of 40 per cent for anyone remortgaging above this level.

This meant Sipp investors who bought commercial property with a mortgage of up to 75 per cent loan to value before A-Day changes were stuck on high-interest mortgages.

James Hay says in 2005, before A-Day changes came into force, more than 90 per cent of its Sipps invested in property and a third of these investments were above 50 per cent LTV.

But as mortgage rates have dropped with the Bank of England base rate cuts investors have been unable to take advantage of lower mortgage rates.

AMPS committee member Mike Morrison says: “The HMRC has agreed that provided the amount of loan is not increased, re-structuring or re-mortgaging will not be deemed to be a new loan and therefore would not be subject to a scheme chargeable payment.”

Richard Jacobs Pension & Trustees Services managing director Richard Jacobs says: “Whether or not we agreed with the introduction of the new lower limit on borrowing for pension scheme,to prevent a scheme from restructuring particularly with what we’ve seen over the last three years could have proved catastrophic, so it’s great news.”

AJ Bell marketing director Billy McKay says: “HMRC have announced that there will not be a scheme sanction charge where borrowing is re-negotiated provided that there is no increase in the amount borrowed. However, clarification is needed on whether this applies on a transfer between two pension schemes.”

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