Investment U-turn
The argument behind this new ruling is that it is designed to prevent people deriving a personal benefit from their pension scheme assets. These assets will be placed on a Prohibited List, whereby no tax relief will be granted on contributions made to pension schemes investing directly in these assets, or on income and capital gains generated by these assets. Included as a prohibited asset is a company holding residential property or chattels of which a SIPP holds 100% of the shares.

If such an investment goes ahead, the tax charges will be:
■
 An unauthorised payment charge on the member of 40% of the purchase price of the asset.
■ An unauthorised payment surcharge on the member of a further 15% of the purchase price of the asset if it exceeds 25% of the pension fund value.
■ A scheme sanction charge on the pension fund of 15% of the purchase price of the asset.
■ Furthermore, any income or capital gains generated by such an investment will incur a 40% scheme sanction charge.

The total tax bill could therefore be up to 70% of the asset value.

In addition, the Pension Scheme could be de-registered by HM Revenue & Customs, meaning it has its tax exempt status removed, and a further 40% tax charge levied on the residual value of its assets.
For any cases already in progress (for example residential property developments not due for completion until after A Day), there are different provisions for different circumstances, but essentially no further expenditure is permitted after 5th December 2005, and any developments must not become habitable while owned by the pension scheme. In addition, no further exchange of contracts are allowable after 5th December 2005. It therefore appears that existing cases must be sold before they become habitable and no further expenditure is permitted.

The Announcement does say that investments where there is no chance of personal or uncommercial use by pension scheme members will be permitted.
This list includes the following:

■
 Shops with flats above (presumably not occupied by pension scheme members or their family)
■ Pooled funds
■ Syndicates
■ Real Estate Investment Trusts (the new investment vehicle proposed by the
Government)

No Recycling of Tax Free Cash
Another popular option originally permitted by the A Day pension regulations, being the recycling of tax free cash, will also be banned. The principle was that an individual could draw a tax free lump sum, pay it into a pension scheme thereby obtaining tax relief, then draw another tax free lump sum of 25% of the amount contributed. This could be done several times where the original amount warranted it, and would have generated significant tax relief.