Your pension could now fund a buy-to-let

In last week’s article, I mentioned that pension rules had changed in April so that you no longer have to take an annuity and instead could invest your pension pot as you deem fit.

This created a few e-mails and questions about it, therefore this week I’d like to look a little closer into the subject of your pension.

The pension reforms were announced in last year’s budget, giving people unprecedented access to their pension pot. Previously, you were only allowed to take out up to a quarter of it and were then forced to buy an annuity policy with the rest. From the 6^th April this year, anyone aged over 55 is allowed to withdraw as much of their pension pot as they like and spend it how they wish.

Whilst this immediately sounds like fantastic news (and caused some pundits to suggest retirees would all be visiting their nearest Lamborghini garage) there are serious tax implications you should be aware of.

As per the old rules, a quarter of the pension pot can still be withdrawn tax-free. Anything above this amount will be taxed as income. So if you took the whole lot out, the first 25% will be tax-free but the remaining 75% will be taxed at your income tax rate of 20%, 40% or even 45%.

Unlike the old scheme though, you are no longer forced to buy an annuity. Critics of annuity policies pointed out that when you died your annuity normally ended as well i.e. you had nothing to pass to your family.

Also, in recent years with the reduction in interest rates, the returns on offer from annuities have been woeful (Hargreaves and Lansdown suggest a 55 year old could now receive 2.2%+inflation or 4.4% fixed for life).

Compare this to yields in Chichester of between 4-5%, with rents that typically follow inflation and the huge bonus of owning an asset which, history suggests, will increase in value and, perhaps the biggest benefit of all, can also be passed down to your family.

I often tell those who ask me where to invest and what property they should buy that it depends on what they’d like to achieve. If you want to maximise your income and have less regard to capital growth, then areas with higher rental returns such as Portsmouth and Bognor Regis could work well, alongside a higher yielding property.

For many, Chichester offers a great mix of decent rental returns but with excellent scope for capital growth. It is also an area in strong demand from tenants, many of whom are relatively affluent and reliable in regards to paying their rent and looking after their home.

I’m not a financial advisor so can’t advise you as to what is the best thing for your pension. However, if you’d like to discuss my knowledge and experience of the various local property markets please get in touch.

(This article was featured in the Chichester Observer's property section on 21st May 2015)

Clive Janes, CRJ Lettings.  www.crjlettings.co.uk

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If you are looking for an agent that is well-established, professional and communicative in Chichester, then contact us to find out how we can get the best out of your investment property.

E-mail me on clive@crjlettings.co.uk or call 01243 624 599.

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