Could the Buy-to-Let tax changes be the next pension crisis?

The National Landlords Association (NLA) has warned that the next pension crisis could be created by the impact of changes to the way buy-to-let properties are taxed, as many individuals are becoming increasingly reliant on funding their retirement through income generated by property.

Recent figures suggest that around 77% of landlords rely on their residential property investment for when they retire, which equates to around 1.8 million people in the UK. Additionally, buy-to-let continues to be considered a safe way of saving for retirement, with 68% of people seeing it as a good way to plan for when they finish work.

However, figures from the Office for National Statistics (ONS) suggest that £21,770 is spent annually by the average retired household. After the full basic state pension of £6,359.60, this leaves over £15,000 of income needed each year. In order to do this through savings, you would need to have around £300,000 put away. According to the NLA, this is the reason an increasing number of people are opting for property to help fund their retirement, which is why recent changes to buy-to-let taxation could lead to a pension crisis.

‘As a consequence of Government policy over recent decades, almost two million people are reliant on their property to fund their later years,’ says Richard Lambert, CEO of the NLA. ‘But the changing tax regime will substantially reduce the income they receive from these investments and so compromise the retirement plans of a significant number of hard-working people.’

As 27% of UK landlords are already retired and 37% are over 55, the need to find a solution for these issues is becoming increasingly pressing. The NLA has therefore called on the government to provide support for those who will be affected by the changes. They want the amount of Capital Gains Tax paid by landlords when they sell their property to be tapered, based on how long the property has been owned and let for, thereby making landlords better placed to adjust their financial plans.

‘Landlords who have invested in residential property for the long-term are different from short-term speculators who buy and develop properties,’ says Mr. Lambert, ‘and this should be recognised when it comes to how much CGT they pay when they decide to sell. It is not always in the best interests of landlords to continue to manage residential property into later life. A Capital Gains relief like we propose would provide an incentive to sell, allowing people to sell poorly performing properties and potentially purchase an annuity, or invest in more liquid, lower risk assets to fund their retirement instead.’

Insights

Making sure you’re on track to retain your lifestyle in retirement

Do you feel like you just go to work day in, day out, with the weeks quickly turning to months and the months to years? If that’s the case, you...
Read more

4 tips to make your finances less scary this Halloween

With October kicking into high gear, bringing with it fiery-coloured leaves, thicker coats and fancy dress costumes, have a read of our article with its All Hallows Eve theme. If...
Read more

Marshmallows and Financial Planning

The Stanford marshmallow experiment is one of the most famous pieces of social science research out there. It has arguably influenced the way that many people live their lives, in...
Read more