The impact of recent buy-to-let tax changes on the way properties are taxed could create the next pension crisis, as individuals are becoming over-reliant on property to fund their retirement years, warns the National Landlords Association (NLA).
77% of landlords – approximately 1.8m individuals in the UK – say they are reliant on their residential property investment for their retirement. In addition, findings from the Mintel consumer market research report found that buy-to-let continues to be viewed as a safe way to save for later life, with almost seven in ten (68%) people saying it represents a good way to plan for retirement.
However, data from the Office for National Statistics (ONS) estimates that the average retired household spends £21,770 every year, which leaves a shortfall of more than £15,000 after taking the full basic state pension of £6,359.60 into account.
In order to make up the £15,000 shortfall per year would require savings in the region of £300,000, which is why the NLA says so many people have turned to property to provide for later life.
The CEO of the NLA, Richard Lambert, warns of how recent buy-to-let tax changes will create the next pension crisis: “As a consequence of Government policy over recent decades, almost two million people are reliant on their property to fund their later years, but the changing tax regime will substantially reduce the income they receive from these investments and so compromise the retirement plans of a significant number of hard-working people.
“Around a quarter (27%) of UK landlords are already retired, and 37% are aged 55 or over, so there is a pressing need to tackle these issues without delay”.
The organisation is calling on the Government to help those affected adjust their financial plans by tapering the amount of Capital Gains Tax (CGT) landlords must pay when they come to sell their property, based on how long they have owned and let it for.
Lambert adds: “Landlords who have invested in residential property for the long-term are different from short-term speculators who buy and develop properties, and this should be recognised when it comes to how much CGT they pay when they decide to sell.
“It is not always in the best interests for landlords to continue to manage residential property into later life. A Capital Gains relief like we propose would provide an incentive to sell, allowing people to sell poorly performing properties and potentially purchase an annuity, or invest in more liquid, lower risk assets to fund their retirement instead”.
More information and the NLA’s recommendations can be found here: https://www.landlords.org.uk/news-campaigns/news/are-middle-income-landlords-being-driven-out-the-private-rented-sector
Do you rely on your buy-to-let portfolio to fund your retirement?