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News - 29 May 2014

Residential property and pensions
We asked Stuart Coleman, Manager of the Tax Department of ABDS to comment on the tax implications between residential property and pensions.
 
“In April 2007 the change in pension regulations led to speculation that buying residential property in a pension fund would be permitted. However, this was not the case, with the reason of causing a massive house price bubble being given.
 
However, the Land Registry has reported a 5.3% national rise in property values in the year to February (13.8% in London), so is there now a possibility of using this? 
 
If we consider a £500,000 pension fund, allowing for moderate growth, this could increase to £670,000 over a ten year period.
 
If the funds were extracted with say, £125,000 tax free, and the balance at 40% £350,000 would be available for investment. With a 5% rental yield this would generate £175,000 over a 10 year period, plus another £200,000 growth in value. This might be more attractive than leaving funds wrapped up in pensions, and of course on death the property could pass to a family member, whereas generally speaking an annuity dies with you.
 
Conversely, HMRC is looking to increase its tax yield in many ways, including Capital Gains Tax (CGT) for property ownership in two ways.
 
Firstly by making non-resident owners chargeable to tax and secondly through changes to the rules for main residence exemption, specifically removing the ability to choose which property gets exemption.
 
There have also been changes to Stamp Duty on Land Tax (SDLT) on high value property, and the charge on residential properties held by companies. HMRC view this area as a potentially fruitful area for continued tax revenue growth, with an estimated 400,000 individuals eligible to benefit from the pension changes, investing in property with your pension funds will take a considerable amount of deliberation.”
 
If you need any help and advice on Inheritance tax or capital gains Tax, don’t hesitate, contact Lavinia Newman, Stuart Coleman or Tonmoy Kumar NOW to discuss how ABDS can help in all your financial planning.
 
Tel: 023 8083 6900 E-mail: abds@netaccountants.net
 
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In touch with issues that face our clients
Mindful of our client’s long term strategic goals
 

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