Here’s a hypothetical example to demonstrate the potential savings.
John, aged 60, is considering applying for planning permission on his one-acre field. The approximate present value of the field is £10,000 but if he is successful in receiving planning permission to build 10 houses on it, the value jumps and a developer would be willing to pay £500,000.
CGT outside SIPP
If John sells the land right away this £490,000 gain (£500,000 - £10,000) is subject to CGT (assume 20% rate). He needs to pay £98,000 (20% of £490,000) in CGT.
IHT outside SIPP
If John holds onto the land until his death, at which point it is then sold to a developer for £500,000, it would be subject to IHT (assume 40% and that his primary residence has already exceeded £325,000 the tax-free threshold).
Whoever inherits the land therefore has to pay an IHT bill of £200,000 (40% of £500,000), relating to the land.
CGT with SIPP
If the land is placed into a SIPP before it receives planning permission the £490,000 gain comes under a tax wrapper. In other words, no tax is paid. CGT (assume 20%) would still be levied on the £10,000 original value, meaning John needs to pay £2,000. This is a saving of £96,000 versus outside the SIPP (£98,000 - £2,000).
IHT with SIPP
As SIPPs can be passed on with no tax treatment, if John still held the land at the point of his death, no IHT would be paid. This is a saving of £200,000 versus outside the SIPP.
