Putting Pension into Buy To Let – Take Advice First

Experts agree that if you’re thinking about putting your pension into Buy-to-Let property, you should take advice first – the tax implications could change your mind!

1. The Main Point This article says that people who are thinking about using their pension money to buy property to rent out (known as “Buy to Let” or BTL) should get some tax advice first. This is because the rules around tax and pensions can be complex, and people might end up paying more tax than they expect.

2. The Numbers A recent study showed that quite a few people, especially those in the 45 to 55 age group, are considering using their pension money for BTL property. They see it as a way to support their retirement.

3. Why the Concern? In 2015, the UK government made changes that allowed people easier access to their pension savings. This means they could potentially take out large amounts of money all at once. However, this comes with tax implications.

For instance, if someone in England or Northern Ireland took out their whole £400,000 pension in one go, they might have to pay around £120,000 in income tax and another £12,400 in a specific tax (called stamp duty) if they’re buying a second home. That’s a big chunk of their money gone just in taxes!

4. Property vs Tax Risks Many people see property as a safe investment in the UK. Some people even use a portion of their pension funds to invest in BTL. However, financial advisers and brokers (people who help with buying property) are wary of giving tax advice. They recommend speaking to tax experts before making decisions, so you don’t end up with unexpected tax bills.

5. Average Pension Size The typical amount most people have saved in their pensions is about £50,000. So, not everyone is taking huge sums from their pensions to buy property. But for those who are considering it, experts strongly advise talking to someone knowledgeable about pensions and taxes first.

6. New Rules to Consider Recent changes in tax rules mean that if someone decides to use their pension to buy a property, they might need to think about setting up a company to do it. This can also come with its own tax challenges. Plus, becoming a landlord has its own set of rules and responsibilities.

7. Overall Advice If you’re thinking about using your pension money for BTL, it’s crucial to:

  • Speak to a tax expert to understand the tax implications.
  • Talk to a financial adviser about the best way to use your pension funds.
  • Remember that while property might seem like a safe investment, there are many factors to consider, including taxes, the responsibility of being a landlord, and the current state of the BTL market.

In a nutshell, using your pension to invest in property might be a good idea for some, but it’s essential to get the right advice and understand all the implications before diving in.