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Hay asks Revenue to rethink Sipp policy

James Hay is calling on HM Revenue & Customs to review its tax charge on remortgages for commercial property held in Sipps to allow investors to take advantage of lower mortgage rates.

The firm claims many Sipp investors who bought commercial property with a mortgage of up to 75 per cent loan to value before A-Day are stuck on high-interest mortgages. This is because A-Day changes reduced the maximum LTV for properties within a Sipp to 50 per cent and introduced a tax charge of 40 per cent for anyone remortgaging above this level.

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 mortgage rates have since come down as the Bank of England bank rate has fallen by 4 per cent.

Technical pensions manager Ian Westwater says: “Many investors are now waking up to the fact that they simply have no option but to either sit on a high interest rate or pay higher tax. HMRC needs to take extenuating economic circumstances into consideration and change their policy on taking out new loans on property already held within the Sipp so that investors can take advantage of lower interest rates.”

Hargreaves Lansdown head of pension research Tom McPhail says: “I cannot see that this is a legitimate argument for a change in the rules. If investors are struggling to afford their mortgages now, then you have to question the original advice on the affordability of the loan.”

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