Sipps investors will be set free by HMRC clarification

According to letters sent to the Association of Member-Directed Pension Schemes, the HMRC intends to confirm later this month that pre-A Day commercial property borrowing limits will remain in place if the investor wishes to switch to another provider or refinance a mortgage.

Before the shake-up of the pension tax regime, Sipp investors were able to borrow 75 per cent of the purchase price of a commercial property and often this was the only or main pension asset.

After A Day, Sipp investors were only allowed to use 50 per cent of the fund to own a commercial property without triggering what Amps labelled "severe tax consequences."

Amps informed the HMRC that as a result of the change, Sipp investors found themselves unable to restructure the loan to get better terms.

In a letter sent to the HMRC earlier this year, Amps said: "If no new monies are changing hands, either between the borrower and the lender or between lenders, and the borrower is not changing - so it is not a new loan for the Sipp, say with a transfer in from another scheme - then it seems a reasonable interpretation that the Sipp is not borrowing afresh."

In response, the HMRC has now stated a replacement or renegotiation of existing borrowing by the Sipp, that occurred pre-A Day, would not result in a penalty unless the total amount borrowed had increased.

The HMRC said: "There may be a charge under Section 192 of the Finance Act 2004 where interest has not been paid on existing borrowing and the total amount outstanding is replaced by new borrowing.

"We would be happy to discuss these on a case-by-case basis."

Richard Mattison, business development director of Sipp provider The IPS Partnership, said this change must have been leaked but could lead to thousands of Sipp transfers once confirmed.

He said: "Some providers just did not give a damn because they knew these clients could not move their Sipp without incurring a significant charge. They will now see their clients move elsewhere.

"They will be looking for providers with lower charges, ones without restrictions on what lender you use and ones that do not have restrictions on what property management service you use and are more efficiently administered."

Robert Graves, chairman of Amps, said: "It is great the industry can now move forward in the knowledge that scheme members will not fall foul of the unintended consequences of pensions legislation."