Just Had A Very Interesting Conversation

[colonel faulkner]

I had a good long chat with a family friend that I haven't spoken to in a while. She's amazed I'm still renting, and warned me that she expects the market to rocket in April because of the SIPP rule changes. Conversation went like this:

FRIEND: Loads of people I know will be buying a property in their pension, they can't wait for April.

ME: Really? I'm not convinced that many people have pension pot big enough to buy a house.

FRIEND:No, but they'll get mortgages.

ME: There's a rule that no fund can borrow >50% of the property's value.

FRIEND: Is there?Well, anyway, lots of people I know have a stash set aside for buying a house through a pension.

ME: Really? As I said, I don't know anyone with a pension pot >100K.

FRIEND: Well, it's not necessarily in a pension fund.

ME: There's a rule that you can't add more than your salary to a pension in any one year, and that's capped around 215K

FRIEND: Is there?? None of my friends have mentioned that.

I think this conversation helped me to understand what a great deal of mis-understanding there is out there about next year's rule changes. Clearly, my friend and the folks she was talking about just assumed that buying a house in a pension will just like buying a house outside of one, but with tax bebefits on top. How wrong they are!!

Edited July 31, 2005 by colonel faulkner

[Guest absolutezero]

This is the problem with the public in general.

95% of them are sheep.

They read headlines but don't look into anything in any detail and then they believe everything that VIs tell them and follow the rest of the sheep.

At some later date they start crying about how they were 'fleeced' or 'mis-sold' something.

There's something called research and these days its even easier than ever to do because of the Internet.

[Dames]

This is the problem with the public in general.

95% of them are sheep.

They read headlines but don't look into anything in any detail and then they believe everything that VIs tell them and follow the rest of the sheep.

<{POST_SNAPBACK}>

Hence you get bubbles and the sheep get BBQ'd.

Dames

[AgeingBabyBoomer]

Presumably, they will discover the rules after April, and realise it is not the gravy train they thought.

Sipps talk will fizzle out to nearly nothing (apart from the very rich, who already have large pension pots and get the bigest tax breaks from sipps)

ABB

[Matt]

And SIPPS purchasers, like everyone else, will not want to buy into a falling market and are likely to hold off for a while.

[Red Baron]

SIPPS will barely ripple the surface of the property market; it's pure VI hype.

Anyone with a pension pot large enough to benefit will be relatively wealthy and probaby benefiting from sophisticated investment advice. Why, in that case, would they buy into a falling property market when there are other asset classes which would bring positive returns?

And anyone with that much money will almost certainly have a proper job and unlikely to want the hassle of being an amateur landlord.

Edited July 31, 2005 by Red Baron

[blackbrogue]

In addition to what has been said about the size of the pension fund required to purchase a £215k property, who would use the whole of their pension fund to buy one asset? Those with this much money would only ever invest a proportion of their pension pot in property which means even fewer will have a sizeable enough fund for it to be woth their while to invest in residential property.

[delboypass]

is there a site where i can read about SIPPS or are there no sites available until April when the rules are released?

You also forgot that when they buy a house in a SIPP they will have to pay RENT to live in their own house into the SIPP pension pot.

If we are all sitting on bundles of cash, would it not make more sense for people like us to buy within a SIPP if we are getting 22% or 40% tax relief...

as for depositing only your annual salary, can you not just self certificate yourself or do you think this will be based on what you paid in taxes the year before...

[the end is a bit nigher]

i imagine the majority of these people haven't got a sipp at present and don't appreciate just how much it can cost to set one up and run

[gilf]

as for depositing only your annual salary, can you not just self certificate yourself or do you think this will be based on what you paid in taxes the year before...

<{POST_SNAPBACK}>

What exactly are you self certing? Your tax returns? How would that work....

You : I earned £150,000 last year I want to add the much into my SIPP

Taxman : sure, just pay us the £70,000 tax you owe us based on that figure.

[brainclamp]

The usual language calling anybody else who differ in opinion 'sheep' in a derisory tone here.

Surely there such be some form of humility from being persistantly wrong for so long, but no.

Its almost laughable - SIPPS are a MASSIVE, IMMENSE structeral tax break. Its not hard to imagine structures for people to pour there savings into SIPPS, not thier salaries. They will have a huge effect, which, together with the ther schemes and taxpayer money going into keyworkers etc...

[Time to raise the rents.]

I was content to leave this one alone until you arrived Brainlamp.

What people don't realise is that these changes take years to show their true colours & SIPPS will be a good example of that.

There's no reason to think that there'll be an overnight jump in prices, but a long term incentive to invest will have it's impact regardless.

[cgnao]

Another government interference and distortion of the free markets. It will cause speculation and misallocation of productive capital.

[Time to raise the rents.]

Another government interference and distortion of the free markets.  It will cause speculation and misallocation of productive capital.

<{POST_SNAPBACK}>

Exactly...

Glad I got in early then.

[Matt]

If it makes any difference at all it will mean yet more BLTers and cause rents to fall further and make a lot of existing BLTers sell up. So not that bad really. Some people fail to realise that the housing market does not involve the printing of money.

[Bubble Pricker]

If we are all sitting on bundles of cash, would it not make more sense for people like us to buy within a SIPP if we are getting 22% or 40% tax relief...

as for depositing only your annual salary, can you not just self certificate yourself or do you think this will be based on what you paid in taxes the year before...

<{POST_SNAPBACK}>

The media headlines have you confused along with many others. The VI's headline spin on SIPPS is that you can "buy a property 40% cheaper". This is simply not true. First, you need to have a pension fund big enough to purchase a property (max. borrow limit 50%). To put that money into a pension fund and get the tax relief, you have to be paying the tax in the first place, that's why it's called tax relief.

So if you take the median UK salary, which is around £24k according to ONS figures, that makes tax of roughtly £4.4k (I did not bother to exactly calculate the allowances etc.). That's a massive £4.4k tax relief per annum for the typical UK earner, provided of course he/she sticks £24k per year in a pension every year (not quite sure how they will do that with their salary being £24, unless they have a huge pot of savings).

Is it now clear why SIPPS will be a non-event?

[Yonmon]

I was content to leave this one alone until you arrived Brainlamp.

What people don't realise is that these changes take years to show their true colours & SIPPS will be a good example of that.

There's no reason to think that there'll be an overnight jump in prices, but a long term incentive to invest will have it's impact regardless.

<{POST_SNAPBACK}>

Of course the SIPPs changes will help to bolster the market over the longer-term. That's obvious to anyone who gives it serious thought rather than adopting a blind bearish perspective. However, as you suggest, it is unlikely to have any major short-term impact, and as a bear I see it doing little in the short-term to reverse the current downward trend, which is the inevitable unwinding of a speculative bubble. It may ameliorate it a little, but that is all. Where it will help, is in the subsequent bounce off the bottom. in a couple of years time.

Edited August 1, 2005 by Yonmon

[Casual Observer]

is there a site where i can read about SIPPS or are there no sites available until April when the rules are released?

You also forgot that when they buy a house in a SIPP they will have to pay RENT to live in their own house into the SIPP pension pot.

If we are all sitting on bundles of cash, would it not make more sense for people like us to buy within a SIPP if we are getting 22% or 40% tax relief...

as for depositing only your annual salary, can you not just self certificate yourself or do you think this will be based on what you paid in taxes the year before...

<{POST_SNAPBACK}>

DAMES recently posted a link to an excellent radio prog on SIPPs - Moneybox, I think. Well worth listening to.

[ItsPriceyUpNorth]

I think SIPP investment will drop. Right now, you can invest in commercial property and borrow 75% of the value. From next april, you can also invest in residential property, but the new 50% borrowing requirement applies across the board. People with SIPPs are loading up on commercial property prior to April 2006.

[dogbox]

Spoke to a SIPPS IFA a while back. She had to levy considerable on - going management fees to administer a SIPP arrangement. This additional cost tier on top of all the usual B2L on - going costs will make many think twice.

The great British public hate fees, ask any Solicitor.

[brainclamp]

Spoke to a SIPPS IFA a while back. She had to levy considerable on - going management fees to administer a SIPP arrangement. This additional cost tier on top of all the usual B2L on - going costs will make many think twice.

The great British public hate fees, ask any Solicitor.

<{POST_SNAPBACK}>

The SIPPS arrangement is totally in line with a broad sweep of law and taxation changes over the past years since Labour got in.

This is a new economic landscape.

If you think about what is really occuring in economic terms, your savings are being given away for little more than 'measured' inflation, which is then simple going into ever spiralling house prices.

Through progressive laws - tenancy law, abolishment of MIRAS for ordinary buyers, taxbreaks like SIPPS, keyworker schemes etc... in a very real way progressivly the drawbridge is being raised up year by year by year, crystalising the transfer of your savings in the hands of investors.

In a normally functioning capitalist economy, your savings would form the basis of business investment - investment in new capacity for producing things.

In a rentier economy, savings are used to create a monopoly situation - a landlord boom always creates a great degree of new wealth, and has a great degree of political influence - always creating such favourable laws and legal enviroment as above.

(Witness for instance, the huge, undemocratic rise in immigration, largely hidden from the electorate.)

You are witnessing a progression of such laws as we move towards a rentier society, and the worlds most advanced police state.

[Sledgehead]

Pensions have offered MASSIVE and IMMENSE tax breaks for years now, yet I don't recall people rushing to pour their savings into them.

Most people just aren't interested in 'long term investments'. They may claim they are, but the reality is closer to: "I'm in it for the long term, but I'd like the option to extract my cash at anytime please."

<{POST_SNAPBACK}>

worth repeating

[Sledgehead]

In a rentier economy, savings are used to create a monopoly situation -

...

You are witnessing a progression of such laws as we move towards a rentier society, and the worlds most advanced police state.

<{POST_SNAPBACK}>

What sort of monopoly has (at a guess) 1 million competitors?

Oh dear Brainclamp. You are terribly highbrow but where is the common sense?

Edited August 1, 2005 by Sledgehead

[Sledgehead]

For those who aren't aware, the second reading of the finance bill is available here : House of Commons debates, Tuesday, 7 June 2005, Finance Bill

There are some interesting points made wrt SIPPs.

People who think the new SIPPs rules are crazy have political allies in the Lib Dems:

Perhaps concern about the end of the feel-good boom in house prices and on the high street is one reason why the Finance Bill signally fails to correct a taxation error that will come into effect on 6 April 2006 and on which the Paymaster General has provided a partial defence to criticisms. Under the provisions of self-invested personal pensions, anybody can invest their personal pension pot in a buy-to-let home and benefit from full tax relief on the money put in, up to a limit of £215,000 a year. Indeed, people can benefit from full tax relief on assets such as vintage cars, wine collections, flats purchased so that children may live in them while at university, and even what my noble Friend Lord Oakeshott of Seagrove Bay pithily described in another place as the occasional jet-to-let property in St. Jean Cap Ferrat.

Let us take the example of a successful professional person who decides to buy a £215,000 flat as part of his or her SIPP for a child to live in while at university. No less than £86,000 of the purchase price will be paid by all other taxpayers. The purchasers will be able to sell the flat on in three or four years and pay no capital gains tax because the property is held within a tax-free fund. Those provisions are a serious and imminent threat to the public finances. We will argue in Committee that there must be an amendment if there is not to be an important loss of revenue. I hear what the Paymaster General said—indeed, we should bear in mind the invitation extended by the hon. Member for Normanton (Ed Balls)—that that will not necessarily happen because of other examples of capital gains tax taper relief not coming home to roost.

Christopher Huhne (Eastleigh, LDem)

Does my hon. Friend share the view that a further worrying aspect of SIPPs is the likely increase in demand for a second home, particularly in rural areas, thereby fuelling the rapidly rising house prices in areas such as my constituency and pricing houses beyond the means of people on local average wages?

Danny Alexander (Inverness, Nairn, Badenoch & Strathspey, LDem)

Edited August 1, 2005 by Sledgehead

[zzg113]

No less than £86,000 of the purchase price will be paid by all other taxpayers.

What a complete &$#£ing OUTRAGE!!!!! :angry: Not only are FTB's being shafted by a ludicrously overpriced housing market, they are ALSO being taxed to fvck to push the property market even FURTHER out of their reach!!! :angry: :angry: :angry: :angry: :angry: