2006 budget: what does it mean for accountants and IFAs?

It’s that time of year again! Gordon Brown’s latest budget has just hit the headlines, and post-budget summaries are already cluttering our in-boxes. Here’s one we hope you’ll appreciate…

The impact of REITs

The property industry has lobbied for Real Estate Investment Trusts (REITs) for about 20 years, so it’s about time that the Chancellor took note! He has at last made major concessions on the structure of these tax-exempt vehicles.

The City predicted that property companies will now rush to turn themselves into REITs. As the scale of the Treasury's climb-down became clear, the share prices of all property companies rose steeply – many by more than 10%. The combined rise in stock market value of the top-four property stocks alone was £2.4bn.

What about SIPPs

However, many smaller private investors may still prefer to invest in their commercial properties through Self Invested Personal Pensions (SIPPs). As of 6 April 2006 (A-Day), new regulations will mean:
- Buy-to-let property bought in a SIPP 2006 is free from capital gains tax
- Rental income is free from income tax
A recent survey by buy-to-let lender Mortgage Trust showed that 70% of respondents would contemplate putting at least one property into a SIPP in light of these rule changes.

The implications

Research by www.propertydata.com shows that the value of property acquisitions by private investors has more than doubled, from £2.16bn in 2001 to £5.1bn last year. However, these investors are often unaware of the risks associated with exposure to a one-off investment like this. They forget about ongoing costs and fall for the myth of guaranteed returns.

We believe recent price increases have been fuelled by demand as an alternative to equities rather than by traditional forces such as the prospects for rental growth, length of lease or the covenant strength of the tenant. It might therefore be safer to spread their investment via a REIT.

Accountants and IFAs can help small investors make the right investment decisions – with property advice from Chartered Valuation Surveyors.

This is part of a regular series of articles – we hope you find it useful. If you would like further information or to add your own comments, please reply to this email or contact Roger Nelson on 0800 902 0466.