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Return to 120% of GAD, Flexible Drawdown and will SIPPs be Allowed to Invest in Residential Property?

Contributed by MW Pensions
18 April, 2013

Contributed by MW Pensions.[www.mwpensions.co.uk]

This newsletter is meant for financial and other professional advisers. Members of the public should not rely upon it

Drawdown – back to 120% of GAD

HMRC have confirmed that the return to 120% of GAD was effective from 26th March 2013. Although there is nothing on their website confirming this, they have advised us that a Resolution has been passed to this effect and the changes are included in the Finance Bill that was published on 28th March 2013.

It applies to all pension reviews on or after 26th March 2013. HMRC have confirmed that a member in drawdown can elect to increase their pension up to the new 120% limit at the start of their pension year that immediately follows 26th March 2013. So someone with a pension year from 1st May can increase their existing pension level to the 120% with effect from 1st May 2013, without requesting a formal review of their pension. Obviously if they are due for a full formal 3 or 5 year review at that pension anniversary, than that must take place at that date.

It must be remembered that a member’s pension year starts on the date they first started to draw benefits and a review can only take place on that anniversary. So if someone last had a pension review as at 20th March 2012, they will have to wait until 20th March 2014 until they can take advantage of the 120% level. If they request a review as at 20th March 2013 it will be limited to the 100% GAD limit.

SIPPs to be allowed to invest in residential property?

The Treasury said in Budget documents: ‘The government will explore with interested parties whether the conversion of unused space in commercial properties in high streets and town centres to residential use could be encouraged by amending investment regulated pensions schemes rules. Any amendments would need to be consistent with sound public ?nances and the government’s wider pensions strategy.'

At the present time a SIPP can develop a commercial property into residential provided it disposes of the asset before it becomes habitable – which usually means before the utilities are turned on. There is also the issue that a SIPP cannot “trade”. So if it did several such conversations HMRC may challenge it as “trading” and hence tax it.

The consultation is awaited and it will presumably deal with the above issues, allowing a SIPP to hold converted and finished residential property without any tax consequences.

Whilst in principle we would welcome such a change, provided that the rules are clearly set, we can foresee many difficulties. The intention would be that the SIPP sells the development as soon as possible after it was finished. However, some developments would inevitably end up being unoccupied for a significant period of time, simply due to the vagaries of the housing market. So would a SIPP be allowed to hold residential property long term? Would that be the thin end of the wedge? And there would be potential personal misuse. And would the FCA class this as a “non-standard” investment, in which case a SIPP Provider offering this would face increased Capital Adequacy requirements which would add to the required fee that would need to be charged. But let’s see what the consultation proposes.

Flexible Drawdown 

Now that we have entered the new tax year, with the top rate of income tax reduced to 45%, we remind advisors that for some of their clients they may wish to look at the Flexible Drawdown option. Provided someone meets the Minimum Income Requirement they can draw out as much of their fund as they like at any time, subject of course to them paying their marginal rate of income tax on their drawings. They can even empty their fund completely. To meet the Minimum Income Requirement they need to have guaranteed annual income of at least £20,000 – essentially someone can only count a State Pension, income being received as pension from a defined benefit (final) salary scheme and/or a purchased annuity when they assess whether they meet the Minimum Income Requirement.

Not all SIPP Providers offer this facility. But we do. Our fee is just £250 + VAT.

Gilt Yield for Drawdown 

The gilt yields to be used for drawdown calculations are:

February 2013


March 2013


April 2013


We do not give financial advice and no comments here are intended as such. The above information is based on our understanding of the legislation governing pensions at the time of writing.  Before taking any action you should consult a qualified financial and/or tax adviser. Levels, bases of and reliefs from taxation may be subject to change.

This Newsletter is intended for professional advisors only, not members of the general public

April 2013 

MW Pensions Ltd
Oaklands Park,   Hooton Road
Hooton, South Wirral 
CH66 7NZ

Tel: 0151 328 1777      Fax: 0151 328 0707    

website: www.mwpensions.co.uk  
e-mail: admin@mwpensions.co.uk

Authorised and Regulated by the Financial Services Authority


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