Buy-to-let tax changes the 'next pension crisis'
The impact of recent changes to the way buy-to-let properties are taxed could create the next pension crisis as individuals are becoming over-reliant on property to fund their retirement years, says the leading landlord body in the UK.
Seventy seven per cent of landlords – approximately 1.8 million individuals in the UK – say they are reliant on their residential property investment for their retirement1 and findings from the Mintel consumer market research report show that buy-to-let continues to be viewed as a safe way to save for later life, with almost 7 in 10 (68 per cent) people saying it represents a good way to plan for retirement2.
However, figures from the Office for National Statistics (ONS) estimate the average retired household spends £21,770 every year3, 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 a £15,000 shortfall per year would require savings in the region of £300,000, which is why the National Landlords Association (NLA) says so many people have turned to property to provide for later life.
Richard Lambert, CEO at the NLA said:
“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 per cent) of UK landlords are already retired, and 37 per cent are aged 55 or over2, so there is a pressing need to tackle these issues without delay”.
The NLA is calling on the Government to help those affected adjust their financial plans by tapering the amount of capital gains tax (CGT) 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 Lambert added:
“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 capital gains tax 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”.
For more information and the NLA’s recommendations, please visit the website.
1NLA BDRC Continental Ltd Quarterly Landlords Panel, Q1 2017
2BTL Mortgages UK, Mintel, April 2017 – seven in 10 people without a rental property, but with an expressed interest.
3ONS, Family Spending in the UK 2017