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Property in Sipps to escape refinance tax charge

HM Revenue & Customs will allow people with mortgages above 50 per cent on properties in a Sipp to remortgage without a tax penalty, according to the Association of Member-directed Pension Schemes.

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

A-Day changes cut maximum loan to value for properties in 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. As mortgage rates have dropped, investors have been unable to take advantage.

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

Richard Jacobs Pension & Trustee Services managing director Richard Jacobs says: “The lower limit on borrowing for pension schemes was unnecessary. It was one of the very few areas where people were disadvantaged. Back in April 2006, no one could have envisaged we would have bank rate at 0.5 per cent when it had been at 4.5 per cent. Why should pension schemes lose out and banks make more profit?”


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