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FAQs
Commonly asked questions regarding Pension Simplification, “A-Day,”, on 6 April 2006.
Q1. “Has residential property now been removed as a possible investment asset class, following the pension legislation changes in April?”
A1. In effect, yes. In the papers accompanying his pre-budget speech in December 2005, Gordon Bown removed the tax advantages associated with investing in pension funds for residential property and the other previously proposed investments such as fine wines, race horses, vintage cars etc. Removing the tax relief has in effect prohibited these investments in pensions.
Q2. “What if I have already bought a residential home abroad “off-plan” with my pension fund, with the intention of completing after 6 th April?”

A2. Harsant Services did not allow this type of investment prior to the proposed changes in legislation. Our clients, therefore, have not been caught up by the governments' U-turn. You need to contact the provider of your SIPP who allowed you to make this investment.
Q3. “What about Commercial Property? Is this still a viable investment in pension funds?”
A3. Yes. Commercial property is a permissible asset class in pension funds now and will continue to attract tax relief post 6 April 2006. For more information on Commercial Property and joining a Commercial Property Syndicate please click here.
Q4. “After “A-day” will I still be able to borrow 75% of the value of the commercial property in order to purchase it?”
A4. No. HMRC has reduced the borrowing to 50% of the value of your pension fund. This was largely due to the introduction of residential property as a permitted asset class, to prevent the residential property market from becoming over inflated. Now residential property has been removed (see A1) the 50% borrowing rule seems redundant but still remains in effect. AMPS, (Association of Member Directed Pension Schemes) of which Harsant Services is a member, has appealed to HMRC to return to the previously allowed borrowing of 75%. We await the decision.
Q5. “Are SIPPs dead now that residential property is no go?”
A5. No! The SIPP market has grown by 40% during the past year, with the existing asset classes. They are an excellent opportunity for investing for retirement.

The existing advantage of a SIPP is complete transparency. You can see where your money is, the costs and the returns, consequently you have the ability to react. SIPPs are far more dynamic than traditional retirement planning arrangements. You have COMPLETE CONTROL of your pension fund and the flexibility to invest in a huge range of investments.

Q6. “What is going to happen after 6 th April 2006?”
A6. Over the past 2 years the media has written extensively about residential property in pensions and there is no doubt this has generated a lot of interest. However, this was not the only change proposed.

After the 6 th April SIPPs will be even more attractive, as we bolt on the new features;

Huge increase in the contributions which can be made into the pension (£215,000 in 2006)

The facility to take tax free cash without drawing an income
25% tax free lump sum
Removal of the requirement to buy an annuity

Ability to transact with connected parties, which represents a significant change to the rule surrounding the purchase of a business's existing commercial property.

If you have any further questions about “A-day” or any other pension issues please do not hesitate to contact us and we will do our best to help.

 
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