Pension rules will not affect buy-to-let
It is already possible to remove 25% of a pension as a tax-free lump sum, and when the pension freedoms take effect in April any further withdrawals will be taxable. A pension fund large enough to finance a property is likely to be in the higher-rate tax bracket of 40%, and possibly as much as 45%.
Portal Financial’s own research found that just 9% of people were sure they wanted to empty their pension fund, of which 5% planned to invest in buy-to-let compared to 34% who would use the money to tackle their mortgage or other debts.
Jamie Smith-Thompson, managing director of Portal Financial, remarked: “Repeated warnings about an inevitable influx of pensioners to the buy-to-let market make good headlines but it is unlikely to happen because it does not make financial sense.
“There will be tax implications of withdrawing over 25% of the pension, and few people are likely to willingly surrender up to 45% to the taxman – the gains from property would need to be huge just to recoup that loss.
“They will also need to think about costs of insurance, maintenance and repairs, as well as having no income when the property is between tenants, not to mention the risk of having their retirement fund in one asset.”