Warning on SIPP and SSAS property rules

SIPP and SSAS clients may need to re-examine any loans secured against taxable property following a clamp-down by HMRC.

The change in tax rules means loans from pension funds secured against residential property will now be seen as an ‘unauthorised payment' and face a tax charge.

Mary Stewart, marketing director of Hornbuckle Mitchell, says the change in rules is the next stage in HMRC's crackdown on residential property holdings within SIPP and SSAS.

New HMRC regulations treat a scheme as having an interest in taxable property if it ‘holds the property or any estate, interest, right or power over the property'.

Previously, the taxman did not consider property as security on a pension loan as ‘having an interest'.

However, under the new rules acquiring an interest in taxable property means a pension scheme is treated as having made an unauthorised payment.

Initially, the value of the payment would be related to the relatively low fees involved, meaning any charge would be minimal.

However, if the loan were to default and the scheme enforced a charge, then this would lead to additional interests in the property. This would generate unauthorised payment charges based on the value of the property, which could be substantial.

Hornbuckle Mitchell says the changes mean residential property and tangible moveable property are no longer suitable security for pension scheme loans, which could limit the options available to some clients.

"HMRC is cutting back on the ways you can get exposure to residential property through a SIPP or SSAS," says Stewart.

"This will not be an issue for most clients, but if an adviser believes there could be taxable property exposure in their clients' pensions then they should take action as soon as possible."