Unit trusts and pensions hurt as Brown targets tax avoiders

Click to follow
The Independent Online

Savers are to be hit by another stealth tax from Gordon Brown, dressed up as an anti-avoidance measure. The Chancellor will remove so-called "seeding relief" on stamp duty in the Budget on Wednesday, hitting unit trusts investing in property and many self-invested personal pensions (Sipps).

The relief is given so the trusts do not have to pay stamp duty when they buy commercial property. Typically, the duty is 4 per cent of the price, so on a £250m building it would be £10m.

The Government is concerned that it is being used by property investors to avoid tax. They set up or buy a unit trust shell which purchases the property, and the investors hold all the shares rather than selling them to the public.

Tax experts and Revenue & Customs disagree about how much stamp duty is being avoided in this way, but it could run into hundreds of millions of pounds.

However, removing seeding relief will hit genuine property unit trusts - including ones being marketed heavily at the moment by the likes of New Star, Scottish Widows and Norwich Union.

It will also hit many Sipps, which are being encouraged as part of the Chancellor's own reform of pension rules.

Already he has changed the rules so that Sipps cannot be used to invested in residential property, causing many schemes to be withdrawn.

The latest amendment will further reduce the attractiveness of Sipps, which used unit- linked investments as a way of putting money into commercial developments.

The property industry has been pressing for reform of stamp duty in this Budget, but Mr Brown is unlikely to do much more than drop seeding relief.

Roger Bootle, the chief economic adviser to accountants Deloitte, predicts that the Chancellor will need to raise between £3bn and £4bn of extra tax.