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Chestertons News 22 August 2017

Will buy to let tax changes create the next pension crisis?

Recent changes to the way buy-to-let properties are taxed could trigger 'the next pension crisis' as landlords are becoming ever-reliant on their investment to fund their retirement years, according to the National Landlords Association (NLA). Figures from the Office for National Statistics (ONS) estimate the average retired household spends £21,770 a year. With the basic state pension currently paying £6,359 a year, the NLA points out this leaves an annual shortfall of around £15,000, which is why so many people have turned to property as a way to supplement their income during retirement.

More recently however, landlords have been hit by a raft of changes resulting in higher taxes and slimmer profits. This includes an extra 3% on their Stamp Duty bill when buying an additional home, adding £7,500 to the stamp duty on a £250,000 property, and a cap on the tax relief available against mortgage interest.

The NLA reports that more than three-quarters (77%) of landlords – or around 1.8 million people – admit that they are relying on their property investments to fund their retirement. With 27% of UK landlords already retired and 37% aged 55 or over, there is increasing concern that changes to the buy-to-let tax regime will significantly reduce income received "compromising the retirement plans of a significant number of hard-working people."

The NLA is calling on the government to help those affected adjust their financial plans by tapering the amount of capital gains tax landlords will need to pay when they come to selling their property, based on how long they have owned and let it out for.

Richard Davies, Head of Lettings, Chestertons

"The impact of the phasing out of mortgage interest tax relief for landlords is likely to manifest itself more noticeably over the next three years, as the amount of relief reduces by 25% each successive year until 2020/21. Nevertheless, as an income investment for those with enough money to buy outright or raise a substantial deposit, residential property remains an attractive investment choice for many, especially compared to low savings rates and stock market swings.

"Some landlords won't fully understand the impact of tax changes to their portfolio and follow unreliable sources of information. We recommend that landlords seek professional advice on what their options are, as many may find they can make adjustments that will enable them to go on and prosper."