1st
Jun 2015
A Financial adviser is issuing stark warnings to those people who are cashing in their pensions, under the new rules, and contemplating of investing into buy-to-let properties; he claims this it is not the most tax efficient way of using their “windfalls”.
Tony Mudd at the financial adviser feels that those people with cashed pensions should think very carefully about the tax implications.
Mudd said: “The government has empowered a generation of retirees to do much more than they could before, including the idea of investing in the buy-to-let property market. With meagre returns on cash savings, buy-to-let offers the potential for attractive levels of rental income and capital gains and retirees may feel they can tread a more familiar path by investing in bricks and mortar,” he said.
“There’s no doubt buy-to-let can offer some attractive upsides, but investors who have saved diligently into a pension because of the tax breaks will baulk at the prospect of handing back 40% or more in tax. Those who understand the need to maintain their standard of living throughout retirement will be working hard to minimise the tax they have to pay.
“According to a recent HSBC study (May 2014), gross rental yields in some property hotspots can be as high as 7 or 8% per year. As impressive as this sounds, buy-to-let is not necessarily the fail-safe investment opportunity these figures suggest; there are many other factors that need to be taken into consideration.
“Residential property cannot be held in a pension, people purchasing a house or flat will firstly need to draw the required sum from the fund. The new rules make it possible to withdraw the whole fund, with 25% available tax-free but with further amounts taxed at the individual’s marginal rate of income tax. People taking a large withdrawal could therefore find much of it, along with any other income for that year, taxed at the higher 40% rate, or the top rate of 45%.”
The taxing does not finish there as Mudd points out that if the value of a buy-to-let property dramatically increases, it could come into the Capital Tax bands when sold. Also the property would become part of an estate for Inheritance Tax.
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