Using your pension for buy-to-let

Savers are planning to use their pension to invest in buy-to-let properties following Chancellor George Osborne’s reforms to allow flexible access to pension pots.

From April, anyone aged 55 or over will be able to take their pension pot as cash, with any money taken out subject to income tax. Before Osborne announced the changes to pensions in this year’s Budget, people tended to buy an annuity, which provides an income in retirement for life.

But now, new research shows people are considering whether to take money out of their pension in order to become a landlord.

Buy-to-let lender Bank of Ireland UK polled 200 property owners, half private landlords and half homeowners, about the rental market.

It found that 29 per cent plan to take lump sums from their pension to purchase a buy-to-let property. A further 13 per cent say they will withdraw from their pension to pay off their own mortgage.

In London, the figures are more stark: almost half of Londoners polled said they would take out money from their pension pot and put it towards a buy-to-let investment.

The research also found that of those who were not landlords already, almost half were interested in becoming one in the next two years.

However, less than 30 per cent understood the tax implications of becoming a landlord, such as income tax, capital gains tax and inheritance tax.

If you are thinking about using your pension to invest in buy-to-let, you may want to speak to a financial adviser who can explain the tax rules and examine whether buy-to-let is the best course of action to provide an income in retirement.

Natalie Holt