Property investment and the new pension reforms

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17 Feb 2015

Property investment and the new pension reforms

Author: Michael Cook

Will you be one of the 200,000 people expected to take advantage of the Government’s change in pension rules and withdraw your entire pension pot to spend on holidays and property?

FPension reform April 2015rom April 2015, we’re expecting a massive shake-up to the way pensions can be withdrawn, offering over 55’s a lot more flexibility, at a lower tax rate. In fact, you will be able to withdraw your entire pension fund in one go and only have to pay your marginal rate of income tax, compared to the 55% tax rate now.

2015 pension changes

In summary, the changes that George Osbourne announced in March 2014 are that from spring 2015, anybody with a defined contribution pension, whereby you build up a pot of money that you use to provide an income in retirement, and aged at least 55, will have total freedom over how they take an income from their pension:

  • You can take the whole fund as cash in one go;
  • Take small lump sums, as and when you like; or
  • Take regular income, drawing directly from the pension fund, which remains invested, or via an annuity where you receive a secure income for life.

The new regulations will allow you to take 25% tax free cash from your pension, with any subsequent withdrawals taxed at the appropriate income tax bands.

The new pension rules are not available for people in final salary schemes.

With pensioners no longer being pressurised into investing in annuities, they will be looking for other higher-yielding investments; this inevitably means a huge boost to buy-to-let property investments.

Using your pension to invest in property

The right property, in the right place, bought at the right price can result in an excellent investment option, and according to research commissioned by Hargreaves Lansdown, 16% of those planning to cash out their pension will be investing their money into property.

Property investment is now becoming a far more mainstream investment vehicle, accessible to investors with the knowledge and foresight to spot effective investments. However, any type of investment carries its risks so it’s vital you carry out thorough research and speak to property experts before you make your own decisions.

“Investing in property and becoming a buy-to-let landlord offers you two ways of earning money; via the monthly rental income and via capital growth” Michael Cook, Assistant Managing Director of Lettings at Romans.

“With a growing need for more properties across the UK, an ongoing lack of supply, and increasing demand due to low mortgage rates, I can’t see property prices stopping their upward climb anytime soon. This is great news for potential investors, and makes property investment one of the best ways of future proofing your income.

“Strong rental yields and a strong tenant demand mean investors can enjoy a healthy income, with the added bonus of generous tax breaks, such as the ability to offset mortgage interest, maintenance and management costs against the rent.

“On top of this, any property bought can be inherited by your children via your estate, whereas many annuity products will only pay out during an individual’s lifetime and the payments stop when they die – in contract.”


Advice from property investment experts

There are many elements of buy-to-let investment that you need to be aware of, such as the effect it can have on your current tax and inheritance situation, and your legal responsibilities. You should also be aware that unlike other investments, such as bonds and shares, the money for a buy-to-let investment must first be removed from the pension, so it won’t benefit from continued growth, free of capital gains tax.

There are many benefits to buy-to-let property investment, one being that you have more control over your investment and the decisions you make. With the new pensions rules set to come into effect in April, Romans is predicting a surge in buy-to-let interest from the over 55s.

“We’re already receiving enquiries from people looking into their investment options and wanting to know more” says Michael. “It’s important that you don’t make a rash decision; although you will, potentially, have access to a large sum of money overnight, this is still your pension, and many people cannot afford for that money to be invested in the wrong place.”

The Chancellor’s budget has, in many ways, given another shot in the arm to the property market, and Michael predicts an increase in Open Houses as more buyers will compete to view and secure properties: “Open Houses provide sellers with a greater selection of buyers and often result in a good price being achieved because of the competitive atmosphere. With a surge of investors competing with first time buyers it will drive the cost of smaller properties up at a much sharper rate than larger properties.

“This could, in turn, create a sellers’ market again, particularly at the bottom end of the market.”

 Rental valuation

How can Romans help you invest in property?

Speaking to an expert about your buy-to-let options is essential, with Romans’ bespoke Investor’s Service you can use over 27 years of letting agency experience to find you the right property that suits your investment needs. Romans’ team of property investment specialists will do all the hard work for you – so you can sit back and watch your portfolio grow and flourish, receiving maximum yields and healthy equity growth, with minimum effort.

Romans’ investment experts handpick the best place to invest in property from across Berkshire, Buckinghamshire, Hampshire, Oxfordshire and Surrey, based on your specific criteria, and what’s more as part of this exclusive service you will be able to see newly available investment properties 48 hours before they are advertised online on, or in local publications.

Romans also provide their prospective investors with expert insights into the up and coming areas as well as specific purchases we believe have great potential.

To summarise, Romans’ advisers can:

  • Source the best properties to buy for investment
  • Advice on where to buy, depending on your budget and individual requirements
  • Provide cash flow analysis so you know what your likely returns will be
  • Introduce you to financial advisers and expert tax advisers
  • Arrange for your property to be let and managed with minimal hassle
  • Offer a guaranteed rent protection policy

With interest rates remaining at record lows, the recent Stamp Duty Land Tax reforms benefiting 98% of home buyers, and predictions of property price rises following the general election, now is one of the best times to invest in property. For more detailed information about the new pension rules, how they will affect you and what your options are download our pension reform insight.

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