BETTER IN A BUY-TO-LET?

It is expected that many people may want to empty their pension funds and put the proceeds into one or more residential buy-to-let properties. This may suit many, but there are some factors to take into

account:
• How much tax will have to be paid on the money withdrawn (if in excess of the 25% tax-free sum);

• The amount of Stamp Duty to pay (on properties costing in excess of £125,000);

• The legal fees and other costs to be paid to purchase a property;

• The fact that rental income is potentially liable to tax;

• That there may be Capital Gains Tax to be paid on the eventual sale of the property.

This is not intended to be a statement that no-one should use their pension fund to invest in a Buy-to-Let, but it is meant to ensure that anyone who intends to do so balances the desire to acquire a property with the advantages of keeping the money in a pension (tax free increase in value; ability to pass to beneficiaries free of tax; ability to access income from the pension fund instantly rather than suffering the delays in releasing the value locked up in a property).

New Pension Vehicles

Providers are developing new and updated pension contracts to take advantage of the new rules. Contact us to discuss your options.

WHY TAKING OUT THE MAXIMUM MIGHT NOT BE THE BEST IDEA!

1. The first reason obviously is that you will have to pay tax on what you take out over and above the first 25%.

2. The other reason is that money in a pension fund can pass to a beneficiary, and, indeed, down a line of beneficiaries – all free of Inheritance Tax. And once a beneficiary receives entitlement to the inherited pension fund, the money they take out is ALL tax-free. (Note: if the person with the pension fund dies aged over 75, the rules are slightly different; contact us if you need more information on this.)

So, if you have other alternatives to provide you with the income you need, you may wish to consider preserving the pension fund as an efficient means of providing an inheritance.