When Nick Dare, 35, and his sister Penny put down deposits on two new apartments in Prague they had good cause to raise a glass of Pilsner to Gordon Brown. Two years ago, the chancellor announced bold new plans to allow people to hold residential property in private pension plans for the first time — giving a sizable tax break to anyone who did so.

The scheme, which was fleshed out in legislation in 2004 and was due to come into force in April 2006, had a rare appeal. The Dares jumped at it with both hands.

“I’ve invested in the stock market and Isas but none of them has done particularly well,” said Nick last week. “But I have seen what property has done for my parents and believed that success could be replicated abroad.”

Dare and his sister are by no means alone. An estimated 25,000 people in Britain have already deposited more than £1 billion in pensions since the beginning of the year with the specific intention of using that money to invest in property.

Many, like the Dares, have gone further and put down cash deposits on flats and houses. Some have even bought land and started building new properties.

“For the first time in years, there was a genuine interest among people wanting to get involved in pensions,” said Peter Ambrose, a north London financial adviser who was himself planning to invest in a buy-to-let home. “Pensions had become a dirty word and the idea that we could take control of our funds and invest in property which most people understand was attractive.”

But last week, Brown’s pre-budget report brought devastating news for the Dares and their fellow investors. Without word of an apology, let alone a proper explanation, the chancellor canned the entire project.

In one short phrase — “pensions will be prohibited from obtaining tax advantages when investing in residential property” — Brown ripped up two years’ work and the dreams of thousands of investors.

The Dares are pushing ahead with the purchase of their buy-to-let flats in Prague, although the effective cost to them has jumped as — without the pension scheme — the purchase price can no longer be offset against 40% higher-rate income tax.

“We are studying now whether we can form a syndicate with other investors which will get us around the rules. Otherwise I will just have to accept losing the extra tax perks,” Nick said.

Others may not be so fortunate. While the Dares had simply put down a deposit on a flat, others had shifted much larger sums of money into private pensions in anticipation of Brown’s rule change. Once placed in a pension, these funds cannot easily be extracted before retirement.

Jeff Lerbury, a 41-year-old accountant from north London, recently agreed a deal that would have seen a £600,000 Edwardian semi pass into his pension fund next year. The plan was to divide the property into flats and let them to students.

“This really was my whole retirement plan,” said Lerbury, a tax expert. “I will be about £370,000 worse off as a result of the chancellor’s announcement.

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