What you need to consider when buying property as a pension
In the last big Budget of 2014 George Osborne announced the most radical pension changes to come into force in more than 100 years! So as we go into a new tax year, those of you who are 55 or over can now withdraw your pension pot in one fell swoop; spending or investing it however you want.
Has this tempted you into buying property as your pension ‘nest-egg’?
Recent research suggests that just over 1 third of over 55s in the UK are now contemplating this move. It also shows what a great investment buy-to-let property truly is, as 1 third of the UK’s existing 1.4 million landlord population are reportedly going to invest their pension pot further into the private rented sector too.
Buy-to-let has definitely been a lucrative source of income for many over the last 17 years, with landlords making 16.3% a year (on average) between 1996 and 2013.
But just how safe is it to cash your pension-pot in to become a buy-to-let landlord?
Here are some key areas that we’d like you to be aware of whilst considering purchasing property as a form of pension:
Whilst 25% of most pension plans are tax-free through the reforms, the rest will be taxed like any other income once it’s withdrawn; so make sure that you thoroughly research and calculate everything correctly, as you don’t want to end up incurring a massive tax bill!
For example, if you were to cash in a pension policy worth £100,000 you would suffer a tax bill of at least £20,000.
It’s always been difficult to obtain a mortgage if you’re aged 65 or over. But because of this revision in pension rules many lenders have now relaxed their age-criteria to encourage more ‘silver-landlords’ towards the market.
Just this week new mortgages are now on offer that can last up until you’re 105 years old!
So make sure that you research the mortgage market exhaustively and find the correct policy for your particular situation.
Make sure that you invest in the right areas for buy-to-let. By this we mean that although London has high property prices, the rental yields have now come down to around 4.3% (on average) which is their lowest since 2008. However, research suggests that the highest yields in London are within reach via certain property types; such as ex-council homes and shared properties known as HMO’s (House of Multiple Occupation).
There is far too much red-tape and legislation constantly being poured on the private rented sector, and at a time that should be the most relaxing era of your life you really don’t want extra stresses added on. Therefore it’s a very good idea to enlist the help of a professional and experienced Letting Agent to take partial or full control of your investment.
Not only will this protect you from the day to day rigmarole of finding tenants, referencing tenants, keeping up with maintenance issues, etc, etc but will also protect you from hefty fines and even prison; should you forget or miss a key piece of legislation and inadvertently put your tenants life at risk.
With over 100 pieces of legislation currently affecting UK landlords, at Northfields we can help you keep up-to-date on everything, as well as making your retirement as harmonious and as lucrative as possible. And as Ealing’s No.1 lettings specialist, coupled with our unmatched services and training, we can unequivocally help you achieve this.
Contact our Lettings Head office, on 020 8567 6660, and begin your buy-to-let adventure with Northfields today!