Finance: Pension pot to property lot?

PUBLISHED: 15:07 14 April 2015 | UPDATED: 15:20 14 April 2015

Is buy-to-let the right option?

Is buy-to-let the right option?


With deregulation of pensions this month, many may look to investing in property. Darren Jordan, property partner at St Albans chartered accountants Kingston Smith, looks at the regulations surrounding buy-to-let

It’s hard to ignore the fact that house prices have risen sharply, particularly in London and the South East. As a result, there has been an increase in ‘generation rent’ – those without the capital to take their first step on to the property ladder. This trend was confirmed by The English Housing Survey, which in 2012-2013 recorded that the private rented sector was larger than the social rented sector.

The UK Government has noted that the private rented sector needs to continue to increase in order to meet housing demand. This presents an opportunity for those looking either to supplement their income or pension pot or to realise a reasonable return on savings with a buy-to-let property. According to property consultant Allsop, 78 per cent of landlords are already doing this. After all, the new flat rate state pension will provide less than £8,000 a year, representing a considerable drop in income for many.

The buy-to-let market has become a more popular investment option of late. With deregulation on pensions from this month, those with a private pension will be able to release capital early, giving them the opportunity to invest that money in residential property. This, combined with recent changes in stamp duty land tax rates – which have benefitted 98 per cent of homebuyers – and the continuing low yield in investments elsewhere, means that buy-to-let is likely to continue to increase in popularity.

Those considering buy-to-let should think about the ownership structure, how the property purchase will be funded, and whether investing for income, capital gains or both.

With careful planning, it should be possible to ensure each investor receives their desired return. There are often opportunities for tax planning by considering the family as a whole unit, from income and capital growth, as well as accumulated wealth, to help optimise post-tax returns and wealth transfer. Each individual and family has their own specific circumstances and there is no ‘one size fits all’ solution. Those who use companies to acquire residential properties need to be aware of new regulations where stamp duty may be at 15 per cent, which may also trigger annual tax on enveloped dwellings. How you structure your buy-to-let is important; think of it like a business and make it work well.

The most shocking point is that HMRC estimates one million private landlords neglect to declare their rental income and are evading an estimated £550m in tax each year. Tax evasion, the illegal non-payment or underpayment of tax, carries hefty fines and potential prison terms. So, even though landlords may feel they are making minimal profits, these must be declared.

To help address this issue, HMRC is undertaking new initiatives. In addition to writing to letting agents and using computer programmes to identify evading landlords via rental websites, it is also running a ‘Let Property Campaign’. This offers landlords the opportunity to declare earnings and receive a reduced penalty.

Don’t let the complexities of the UK tax system put you off investing in property however; it still provides great opportunities for generating income and wealth.

Latest from the Hertfordshire Life