THE dispute over tax breaks for the wealthy intensified yesterday as it emerged that betteroff taxpayers will be able to buy holiday homes and buy-to-let properties through their personal pension funds and get back 51 per cent of the purchase price from the taxman.

A higher-rate taxpayer buying a £100,000 property through a Self-Invested Personal Pension (SIPP) would receive a £23,000 refund personally and a further £28,000 refund into the SIPP, making a total rebate of £51,000.

The new rules, which are due to take effect in April, are even more generous than had been supposed, according to James Hay, a unit of Abbey National and Britain’s largest provider Self-Invested Personal Pensions.

The claim that higher-rate taxpayers would be able to buy holiday homes and buy-to-let properties at, in effect, a 40 per cent discount actually understated the benefit, David Baker, a director at James Hay, said.

“It’s extremely generous,” he said. The sums were even more persuasive for the over-50s, he added, because of the ability to take a cash lump sum out of the pension pot.

The reason for the added generosity is that HM Revenue & Customs grosses up the size of the pension contribution at the basic rate of tax before doing the calculations, Mr Baker said.

Yesterday Norwich Union sounded a warning about the over-hyping of SIPP investments in property, saying that some companies were overemphasising the benefits without spelling out the pitfalls.

Iain Oliver, Norwich Union’s head of pensions, said that companies marketing overseas holiday homes were failing to admit that buyers could be liable for capital gains tax in the host country when selling the property.

He is also worried that people with final-salary occupational pensions could be persuaded to transfer funds into a SIPP without understanding what they were sacrificing. The insurer called for SIPPs to be regulated by the Financial Services Authority, an option being considered by the Treasury.

The Treasury played down the prospect of the changes prompting a wave claims by the well-off. There were a range of constraints on putting residential property into a SIPP, it said.

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