Lib Dems seek union backing for effort to close pensions loophole - Huhne

11.25.21pm BST (GMT +0100) Sun 3rd Jul 2005

Chris Huhne, Shadow chief secretary to the Treasury, today wrote to two leading trade union leaders asking for last minute pressure on the Treasury to block an expensive tax loophole.

Mr Huhne said that it could not make sense for the Treasury to allow tax relief for high earners who invest in residential property and personal assets like paintings and vintage car collections at the same time as thousands of pensioners were seeing their likely benefits slashed.

"The new rules allowing wider investment in self-invested personal pensions (SIPPs) from next April are likely to cost the Treasury at least £500 million a year in lost tax revenue, and that figure will gradually rise according to city market research estimates" said Mr Huhne.

Mr Huhne said that the last opportunity for the Treasury to change the current Finance Bill going through parliament would be next week, and both Tony Woodley, general secretary of the Transport and General Workers Union, and Derek Simpson, general secretary of Amicus, had already expressed their concern about the tax reliefs.

"I have written today to both union leaders asking them to put pressure on the Treasury ahead of the amendment deadline on Monday evening. We have tabled a new clause that will limit the relief, but it stands no chance unless the Treasury agrees to take it on board or introduce a clause with equivalent effect" said Mr Huhne.

Under the new provisions that will take effect from next April, people will get full tax relief at their top income tax rate on buy-to-let properties, "jet to let" properties used as holiday homes, wine and vintage car collections.

The new provisions replace a controlled list of approved assets such as shares and bonds.

"The Treasury has completely underestimated the potential revenue losses from this change in the rules on assets. Many City advisers are now telling their clients that the new rules on SIPP are a fantastic way of buying assets with full up-front tax relief as you can invest up to 100 per cent of income with a limit of £215,000 a year" said Mr Huhne. "Any increase in value plus any income is entirely protected from the taxman".

Mr Huhne said: "In theory, if you use the asset yourself, you are liable to a tax on benefits in kind. But this provision is wide open to abuse, as it is hard to imagine officials from Her Majesty's Revenue and Customs visiting, say, Croatia to check on whether a holiday home is genuinely empty and unlet at a particular time of year, or is being used by the owners.

The clause that the Lib Dems have tabled to the new finance bill limits the ability of SIPPS to invest in directly-owned residential property and in assets such as wine or gold bullion that are not capable of producing an income return to the fund.