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Sipps that pass in the night

Chancellor Gordon Brown’s dramatic U-turn on property Sipps caught many by surprise despite the growing political and economic pressures on the Treasury to reassess the policy.

A Treasury spokesman says there had been growing concern by the Chancellor over the possible misuse of the new rules for reasons other than to provide an income for retirement. He says that although some people in the industry had been investing heavily in preparation for the A-Day regime that is no reason to allow the reforms to go ahead and a decision has been made enough in advance of next April.

But there were also growing protests from within the Labour Party that no matter how the Treasury tried to excuse the new regime by saying that few people would be able to take advantage of it, this was essentially seen as a massive tax break for the wealthy.

Cicero Consulting director Iain Anderson believes that the final decision was made due to immense pressure from the Labour Parliamen-tary party. He says Brown is looking to woo lower and middle-class voters who would be put off by the publicity of this tax break.

Anderson also says there is a consistency issue, with the Treasury desperate to plug tax leakage across the board, so serious questions would be asked in other areas if property Sipps were allowed.

This concern was evident in the Treasury deliberations to allow real estate investment trusts with the tax relief issue seen as the major stumbling block to their introduction and Brown issuing a caveat in the pre-Budget report suggesting there would be a clampdown if Reits were used to get round rules on prohibited assets.

Royal London head of corporate affairs Gareth Evans says the fear of huge tax losses was the overriding reason for the turn-round rather than appeasing the party.

He says: “I do not think that Brown was prepared to take the risk that it was not as popular as property experts, accountants and some providers were predicting, with the potential for a black hole in Treasury spending.”

He says the Treasury has recently come round to the view that the implications of some of the A-Day rules mean it may have to pay huge sums of tax relief even though it had not brought up the issue in any of the 50 amendments to the bill that took place in Parliament.

Standard Life head of pensions policy John Lawson brings up this discrepancy and questions why the decision was made now, so close to A-day. He says Standard has lobbied the Government hard on the issue over the past two years, checking the Treasury was aware of the potential tax relief liabilities that it was taking on.

He says Standard is already lobbying for a partial reversal of the decision, hoping that buy to let could be exempt as it can be seen more clearly as an investment for retirement but adds that he is not holding his breath.

The LibDems have been constant in their criticism of property Sipps have attacked the Chancellor for delaying the reversal until this late stage.

LibDem Shadow Chief Secretary to the Treasury Chris Huhne says Brown has wasted thousands of hours of people’s time on something where the “obvious potential for abuse” was there from the start.

He says he tabled an amendment in June that was similar in content to the arguments that Brown used to justify the U-turn but Treasury ministers dismissed these points in the House of Commons and at committee meetings.

Economic Secretary to the Treasury Ivan Lewis was still defending the rules up to November. In September, he told Money Marketing that he would not backtrack on the issue and blamed the growing columns of bad press on the subject on people not understanding the constraints and limitations of what people will be able to do.

Building Societies’ Association external affairs manger Rachel Blackmore says a combination of political and economic pressures forced Brown’s hand. She says the media coverage over the summer meant that many Labour backbenchers have raised concerns on something that would have not normally crossed their radar.

She says the issues brought up over the effects on rural communities, affordable housing and first-time buyers really hit home with the Parliamentary Labour party. She also says concerns about misbuying and misselling of property played heavily on the Treasury’s mind.

In terms of the timing, Blackmore says Brown has had plenty of other things occupying him and it has become apparent recently that the rules were not matching the original “Brownite vision” which was to encourage increased investment in social housing through the new rules. In essence, it was a case of better late than never, says Blackmore.

Aegon head of corporate affairs Francis McGee considers that the Treasury has been transparent in its reasons for the U-turn after it sensed the growing potential for abuse, with tax relief being used primarily for family and personal use rather than contributing to retirement.

He says: “The Treasury had become increasingly worried about creating a bubble it would have trouble dealing with in the future. Let us hope that it now sticks to its guns and resists lobbying for the reinstatement of aspects of the legislation, such as buy to let, which would just create further confusion.”


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