Lawyers have warned of a potential pensions mis-selling scandal within the financial services sector following the Government’s U-turn last week preventing residential property from attracting the tax perks of pensions.
Maclay Murray & Spens pensions partner Gary Cullen warned that financial advisers could face legal action if they did not sufficiently warn clients that the rules governing the tax advantages of self-invested personal pensions (Sipps) were not yet concrete.
As part of a briefing paper accompanying the pre-Budget statement last week, the Treasury revealed that residential properties purchased through a Sipp would not attract any tax relief. This is despite earlier speculation that residential property held within a Sipp would attract up to 40 per cent tax relief from A-Day (6 April), when the new rules are to be introduced.
It is understood that, on this basis, growing numbers of investors had been setting up Sipps and paying deposits on property developments with the aim of completing the transaction after A-Day.
Sacker & Partners director of professional development Claire Carey said: “It completely reverses the situation less than four months before A-Day.”
Investors will still be able to access tax relief if they invest in residential property through commercial investment vehicles such as real estate investment trusts.