Chancellor of the Exchequer Gordon Brown and his team have taken the pensions industry - and the wine industry - by surprise with a U-turn on pensions and SIPPs. Contrary to all expectations he has announced that wine, and other alternative assets, will NOT get tax relief although it may be possible to put them into pension portfolios.
The situation is still very confused. It should be clarified when new legislation, which will cover prohibited assets, is before Parliament. This is expected before the end of this year and will have to be enacted by A-Day – 6 April 2006, when the new pensions rules come into force.
Wine and SIPPs
From A-Day (6 April 2006) UK pensions should be both simpler and more flexible. Unfortunately the Inland Revenue has yet to publish the fine detail and nobody really knows exactly how some of the aspects of this new regime will operate.
Nor, following Gordon Brown’s pre-budget statement on 5 December, is it clear what alternative investments will be allowed in pension portfolios and whether any will be eligible for tax relief. Although wine may still be allowed into a SIPP, it may attract substantial charges.
The publication date for fine detail has not been fixed. It was expected during the autumn, then in late November. Now the date is said to be mid to end-January – barely two months before A-Day. Presumably the fine print may now have to wait until the new legislation is passed. This is due to be placed before Parliament before the end of the year should help to clarify the situation.
It is also unclear how many Sipps providers will actually be prepared to include wine and other alternative investments into pension portfolios. Prior to Brown’s statement three of the largest specialist Sipp providers had said that they were not prepared to accept wine as a pension investment because of the risks involved and the fact that most wine is a ‘wasting asset’. Now without tax relief few providers will be prepared to contemplate including wine.
Prior to 5 December the attitude of the fine wine trade had ranged from bullishly upbeat (Berry Bros & Rudd) through restrained enthusiasm (Armit) to those waiting for the Inland Revenue’s small print (many companies including Bordeaux Index, Corney & Barrow and Magnum Fine Wines). Now, although the legislation and fine details are still awaited, many accept that wine will not be part of the new pension arrangements.
Berry Bros & Rudd, however, remain optimistic. In their fine wine email letter of 7 December Simon Staples says. ‘It appears likely that our initial understanding of the Chancellor’s words may prove correct, however a number of senior financial advisers believe it is possible that there has been a mistake in drafting the technical note and that the Revenue really means to prohibit only those assets, such as holiday homes, that are held for personal use and not for investment.’
Staples appears to be clutching at straws. It seems most unlikely that there will be any significant political pressure to allow high worth individuals to buy cases of Lafite to put into their pension and claim 40% tax relief. Indeed the Chancellor is more likely to gain kudos for closing this loophole, albeit just weeks before A-Day.
