News that from 6 April 2015 anyone over 55 can withdraw a lump sum from their pension has sparked widespread speculation about exactly how these newly available funds will affect the property market. We at Dukes Bailiffs aren't convinced that the new rules will be helpful to commercial landlords.
National newspapers like The Daily Mail and property market commentators including Property Reporter and Property Secrets have suggested that many pensioners will use their newly available pension pot to purchase buy-to-let property in a boom of "silver landlords". Much of the clout behind this argument comes from survey data, with sources variously suggesting that "54% of people see property as a better investment than pensions" and "16% of those taking out their entire pension pot intend to put it into property". This would be no bad thing for commercial landlords, who have seen property stocks impacted by increasing conversions to residential property. However, the tax cost and demanding nature of being a private landlord may prove too much for silver spenders.
The potential for profit
As Richard Dyson at The Telegraph points out, even after a 25% tax-free lump sum, the withdrawal of £150,000 would trigger a tax bill of almost £40,000. What's more, any gains made through price rises during ownership of the property will be subject to capital gains tax. That's another 28% hit on profits. Then there's the potential for inheritance tax, unless the property is transferred more than seven years before the owner's death. In contrast, pension assets can be passed on free of tax, and aren't subject to capital gains tax. Perhaps a more relevant comparison, though, is that rental property from commercial property held within a pension would only become taxable when withdrawn. If more pension holders were aware of this, perhaps they might consider pension investments that benefited both their retirement fund and commercial landlords. Whether this is likely to happen remains to be seen.
For more information about Dukes Bailiffs and our services, and for advice about commercial rent arrears recovery, speak to one of our advisors today on 0844 880 9808.