PropertyInvesting.net: property investment ideas, advice, insights, trends
Propertyinvesting.net: Property Investment ideas, advice, insights, trends

PropertyInvesting.net: Property Investment News

 Property News

more news articles...

Buy-to-let baby boomers to become Britain's latest tax victims


12-03-2014

 

Withdraw your pension to buy a second home and face punishing tax hit

Gorwing entrepreneurial spirit among older workers will help to push the number of people aged 50 and over who own their own business to a record two million before the end of the decade, according to a report
Over 55s who may choose to withdraw the pension in one lump sum and sink it into rental property need to assess the tax bill. Photo: ALAMY

Enterprising baby boomers who choose to withdraw their pension in a lump sum to invest in a rental property will face a tax bill worth hundreds of thousands of pounds.

After the annuity reforms come into effect in April 2015, that will allow people to withdraw their pension in one go instead of being drip fed an annual income, it is likely many pensioners will consider sinking it into property. But they need to think twice, experts at PwC have warned.

An individual taking out £500,000 to buy a £750,000 second home, supplemented by a mortgage, will have to find nearly £200,000 to cover the tax bill.

A pensioner withdrawing £200,000 to buy a £500,000 home - around the average asking price of a home in London - will pay around £80,000 in tax, according to the giant accountancy firm.

While those who draw back a £100,000 lump sum to buy a £250,000 will pay between £29,000 and £36,000 dependend on tax code.

A individual who wants to fund a buy-to-let project is hoping for house price appreciation over time and an income from the yield. However, the whole transaction could be taxed at as many as five different junctures.

They will face income tax when the amount is withdrawn, stamp duty on buying the property, income tax on the rental stream, plus capital gains tax if sold. And inheritance tax could eventually play a part, explained Iain McCluskey, tax director at PwC.

"The reforms to annuity are net positive for the Chancellor," he said.

The over 55s, known as the baby boomer generation, are comfortable with property as an investment having made 200pc house price appreciation in 20 years.

This and the UK's historically low interest environment will drive people to put their savings and pension into property, Mr McClusky added.

"While this generation trusts investments that you can see and touch they should also be wary of the extra costs on top of tax, such as maintenance of a property. They must exercise caution when taking out one lump sum and understand tax circumstances in one year."

So complicated are these latest tax reforms that the Government is providing a free tax advice service, face-to-face, over the phone and via a website, to help people choose the right pension product.

However, income tax relief on a quarter of a pension pot means that those with a big enough sum could use the first 25pc for a deposit to buy a home, with a mortgage, and avoid the first income tax hit, alhtough getting a big mortgage becomes far harder at this stage in life.

PwC does not expect further property tax announcements in this week's Autumn Statement.

"There is too little time to implement any fundamental reforms ahead of the general election," said Alex Henderson, head of tax at PwC.

However, leading property group, JLL, is calling for an overhaul of the council tax system and for Government to address the UK's housing shortage.

www.telegraph.co.uk

back to top

Site Map | Privacy Policy | Terms & Conditions | Contact Us | ©2018 PropertyInvesting.net