The SIPPs u-turn

Much to the disappointment of millions of investors, the SIPPs tax break, which Gordon Brown announced in last year’s budget, has been withdrawn.

On April 6th 2006 (otherwise known as A-day), the rules on permissible SIPPs investments were due to be relaxed. The most eagerly anticipated changed to the existing rules was that residential property was due to become a permissible SIPPs investment. Investors would have been able to hold new and existing buy-to-let properties within SIPPs, plus holiday homes around the world and even their own homes.

As it now stands, commercial property will still be a permissible SIPPS investment, but any residential property bought through SIPPs would have a 40% tax bill slapped on it.

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The initial proposals were widely criticised as being a tax break for the rich, who could use SIPPs to buy second homes or "tangible moveable property" such as classic cars, fine wines, or works of art.

The Treasury said that the aim of the new policy was to ensure that the tax reliefs would only be given to people genuinely using SIPPs to provide a pension for themselves.

It had also been alleged that the proposed tax breaks would have drained the Treasury of £2 billion a year.

The Government has stated that indirect investment in residential property will still gain tax relief when bought through a proposed new investment vehicle called a Real Estate Investment Trust.