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To have and have not

The new 40 per cent tax break for buy-to-let landlords has, not surprisingly, attracted more media attention than any other pension policy for quite some time.

With this week’s ABI figures showing a downward slide in stakeholder pensions, the Government could be forgiven for choosing an eye-catching idea to attract the public’s attention to saving for retirement. Residential property within Sipps certainly does that. Who in our industry has not been grilled at parties, pubs or in the back of taxis as to what the new rules will allow?

Experts are now recom-mending that residential property in pensions is not suitable for those with smaller pension pots but, for those with substantial funds or with existing BTL property portfolios, the new tax rules will certainly offer tax advantages which advisers should rightly assist them in profiting from. How much money will pile into BTL is hard to say but I have spoken to many intermediaries who say their clients are teed up for next April. Research from The Property Investor Show predicts that 6.5bn will pile into Sipps in the first 12 months following A-Day. It is clear that this will impact on the UK property market.

Elinor Goodman, chair-woman of the Government’s Affordable Rural Housing Commission, has added her voice to that of the LibDems in pointing out the lack of joined-up thinking in White-hall on this issue. She has pointed out that purchases of second homes in pensions could trigger sharp house price rises in rural areas, forcing locals out of the property market. The same can be said of university towns and anywhere deemed to be a BTL hotspot.

The Treasury’s response is that Sipps form a tiny proportion of the UK housing market – just 200,000 of the 15 million people with pension investments. But this ignores the fact that pension giant Standard Life, along with a host of other providers, see the vehicle as its personal retirement solution of choice.

In April, when launching a consultation on expanding homeownership, Chancellor Gordon Brown gave a speech in which he saw “a Britain of ambition and aspiration, where more and more people must and will have the chance to buy their own homes”. In his pre-election vote-catching Budget, he promised help for first-time buyers (and BTL investors in Sipps) by raising the zero-rate band threshold for stamp duty from 60,000 to 120,000 to “further help first-time buyers”.

These policy initiatives seem hollow in light of the fuel being poured onto the residential property market by making homes more attractive to investors.

The expansion of the BTL market has had many beneficial results – the widespread availability of competitively priced and well maintained rental properties, for example. But as we are told that only those with substantial pension pots will be able to take advantage of this latest tax break, this latest shift in the tax framework can only be seen as favouring the wealthy.

One can only suppose that the policy is an attempt to keep the overall housing market from a hard landing that would have far wider ramifications for the UK market in general. This policy does nothing for either pensions or residential property have-nots.

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