Advisers have questioned whether inheritance tax reforms could stop people buying commercial property via their pensions.
From April 2027, unused pension funds, including those in Ssas and Sipps, will be included in the estate for IHT purposes.
This is a major shift from the current rules, where defined contribution pensions sit outside the estate and can pass on IHT-free.
But advisers have said these rules could have an affect on Sipps and Ssas’s if people stop buying commercial property via their pensions.
Rowley Turton director, Scott Gallacher, said: “While Sipp and Ssas providers may enjoy a short-term uptick in advice fees, the long-term picture looks far less rosy.
Property in pensions has always been an uneasy fit
“Stripping out a key IHT benefit could hit demand — and by extension, raise serious questions about the future value of pension firms that are heavily exposed to these structures.”
Rootes Wealth Management independent financial adviser, Rob Mansfield, said “property in pensions has always been an uneasy fit”.
“What makes sense at the time of the purchase can lead to problems when someone wants to take the money out.
“You can’t sell a room or a floor, the whole building has to be sold. If the market is poor when you come to sell that can be a problem.”
Mansfield added the change in inheritance tax treatment adds another layer of complexity because no one knows when they are going to die and so if there is a tax bill to pay, a quick sell might not be in the family’s best interest.
However, Mint Mortgages & Protection director, David Stirling, argued this is not necessarily the end of Ssas/Sipps for property, but could represent more of a realignment.
“For retirement planning and active business use, they will still have advantages, however their role in succession planning and wealth preservation is under threat,” he explained.
“As one loophole closes, another opens, and the wealthy can start moving towards trusts and Family Investment Companies for their intergenerational planning.”
But Monmouth Capital managing director, Faisal Sheikh, argued in favour of the changes, stating: “I am probably a lone voice in my industry in saying this: pensions should be subject to inheritance tax.”
He said the fact business owners could use their pension to buy their own commercial property, not pay tax on rental income, have no CGT on sale and/or no IHT should be looked at as a “perfect example” of why the tax code needs to be ripped up.
“I don’t see the closure of this wheeze as a negative for society at large,” he continued.
“Pensions are meant to fund your retirement, not be an estate planning tool. If you are fortunate enough to have so many surplus assets that you didn’t need your pension in your lifetime, congratulations. The pot that’s left over is part of your estate.”
tom.dunstan@ft.com
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