Thursday 23 May 2019

Should Chichester’s retirees invest in buy-to-let property?

I was contacted by a recently retired couple who were considering investing in buy-to-let property to supplement their pensions. Whilst I can’t offer financial advice, here’s a few snippets of what I suggested they consider first.

Is it too much hassle?

Retirement should be the time to relax and undertake the pursuits you enjoy whilst spending time with those you love. Property is not an ‘armchair investment’ like sticking money in the bank; you need to buy the right property at the right price…and then the hard work starts!

Even if you use a letting agent, ultimately the landlord is responsible for what goes on at their rental property. And whilst a letting agent should take the bother out of receiving those emergency maintenance calls from tenants, for some people the worry over whether the tenant will pay their rent or whether the property will require costly repairs is enough not to want to invest in property in the first place.

How much will you earn?

In Chichester the average net rental return from a single-let property will be around 4%. Whilst this is more than double the best savings accounts at the moment, is this enough to warrant the additional effort and risk it entails?

And don’t forget the taxman will be keen to get his mitts on a chunk of your investment return as well. Rent is recorded as income for tax purposes, so higher rate taxpayers will be stung accordingly, but bear in mind that even lower-banded tax payers could get dragged into the higher tax bands with the added income.

What does the future hold?

Property is not an asset you can easily sell quickly to cash in your chips if you suddenly need the money e.g. for care fees. And whilst capital growth can be strong with property, consider whether you’ll actually get the benefit of this.

If you do decide property is right for you it is worth spending some time with an estate planner to assess the best way to purchase the property. For example, in a company or trust, or possibly in your children’s names rather than your own, for optimal tax planning when it comes to future inheritance tax liability.

In summary

Property can be a great store of wealth and, with interest rates so low, the returns are better than you can get from many other investments. But I’d question whether it’s worth it for retirees with only a modest sum to invest if they’ll then need mortgage finance, as new rules on mortgage tax relief could see their net returns don’t warrant the hassle. But for higher net-worth retirees, property is certainly a logical place to put some of that wealth, preferably in a tax-efficient holding that can mitigate future inheritance tax, whilst providing a decent income for you to enjoy your golden years.

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