Investment Life & Pensions SIPPS Supplement June 2014 | Page 12

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SIPPs and the
Budget

We are not advocating long-term cash
investment, but for individuals looking for
security in the short-term then it can be a
useful option. If a customer is looking for
higher cash investment returns than those
available from an insurance company, then a
fixed price SIPP presents an interesting
alternative.
SIPPs used to purchase physical
commercial property
With average property values being
considerably higher than average pension
fund values, we find that many SIPPs are
established as groups with two or more
members collaborating to jointly purchase a
property with the combined pension funds.
This is an attractive option, but it can have its
potential downsides when it comes to
drawing benefits at retirement, for example,
when one of the parties wants to retire before
the property is sold.
The Budget proposals are a potential game
changer as funds will be so much more
accessible at retirement, allowing some or all
of the property to be paid as an in-specie
benefit, in lieu of cash (although income tax
will still have to be paid to HMRC at the
appropriate amount under PAYE). Should the
review of lump sum death benefits result in a
reduction in the 55% tax rate that can apply,
then this will also provide an important boost
to owning property via SIPP
.
Commercial property purchase is one of the
most exciting areas of pensions - particularly
for the business owner that wishes to
purchase a property via their SIPP and lease
it to their own business. Even before the
Budget, we had seen a significant increase in
interest in new property enquiries.
Anyone considering a SIPP property
purchase should use a specialist company
with the expertise to handle the transactions
efficiently and personally - after all, this is a
complex transaction and the investment will
often be held for a number of years - getting
the choice of provider right is vitally important.
We’ve seen some providers struggle to
maintain their customer service in this area
and we’re happy to help those wanting to
move providers or to make new purchases.
Retiring in the next year?
For anyone considering their options today,
we think that they need to get good quality
financial advice. We anticipate an increase in
transfers to our SIPPs, particularly where
existing pension schemes do not offer what
the customer requires.
We were in the first group of providers to
implement the interim changes to all our
products on 27 March 2014 and we are
committed to offer the future flexibility that the
new rules are anticipated to allow.
Unintended consequences - tax reliefs
The new interim rules present an interesting
scenario for anyone aged over 60 that may

32

“The Budget
proposals are a
potential game
changer as funds
will be so much
more accessible
at retirement.”
be eligible to use either the Triviality or Small
Pots rules to pay a contribution and then
withdraw the funds soon after. Here’s an
example, and this only works for someone
that has sufficient “relevant UK earnings” to
support tax relief on the contribution.
John, aged 61, is employed and has a salary
of £30,000. He has never been a member of
a pension scheme. On 1 May 2014, he
makes a personal contribution of £24,000 and
the SIPP provider claims basic rate tax relief
for him of £6,000 which will be credited to his
SIPP account a few weeks later. Then, after
the tax relief is received by the SIPP he
,
crystallises his pension fund using the triviality
rules, and receives payment as follows:
Tax free lump sum (25% of fund)
Net income (£22,500 less
20% income tax)
Total

£7,500
£18,000
£25,500

So, in other words, this has cost him £24,000
net and he receives £25,500 back. However,
it’s not quite that straightforward because he
would be paying SIPP fees and he would
have had to wait a period for the tax relief to
be credited to the scheme.
This illustrates the unintended consequences
of the new interim rules, and makes us think
that this will be changed very shortly. In the
example, it is important that the overall
amount of his pension funds do not exceed
£30,000, he is aged over 60 and has not
previously used the triviality rule.
So is the Chancellor being generous?
Since 2001 the cost to the exchequer of
pensions tax relief has doubled, yet in the
same period the tax received from pension
incomes has not kept pace, to the extent that
pension tax relief now costs around three
times the amount of tax collected from
pensions in payment.
The baby boomer generation are now at or
approaching retirement age and by
increasing the amount of income that can be
withdrawn the Government is likely to see a
big increase in tax receipts. The press quickly

Investment Life & Pensions Moneyfacts

®

picked up on this “tax grab” aspect to the
Budget proposals with the Budget notes
revealing estimated additional tax receipts of
£3bn over the next five years. Ultimately it will
be the choice of the individual - nobody will
force anyone to take the maxi