Should You Cash in Your Pension to Invest in Property?

By Simon Morris On Thursday, January 15 th, 2015 · no Comments · In

This week property specialist Simon Morris asks; with government pension reforms allowing retirees to spend their pension all at once from April 2015, should you cash in your pension to invest in property?

London-Based Property Consultant

As a London-based property consultant, Simon Morris uses his expertise to advise UK property investment funds how to maximise profit margins on their property investment portfolios.

As such, Morris understands that new government pension reforms will spur some retirees to look into whether they should take advantage of the property market by becoming buy-to-let landlords. Should they tread with caution?

Bricks and Mortar vs. ISA Wrapper

If prospective landlords choose to invest in brick and mortar stock, they would be subject to a heftier tax bill than they would be if they invested in property funds that are part of an ISA wrapper.

Evidence shows that Britain has an estimated two million buy-to-let landlords. Meanwhile predictions suggest that 200,000 people will cash in their pension throughout the year following April 2015. Of this figure 32,000 (16%) are expected to use these funds to bankroll a property purchase.

Furthermore whilst the price of property has increased over the last two decades and is expected to keep increasing, owners should pause for thought. They should think about the system of taxation they would be subject to should they delve into the buy-to-let market.

How Much Tax Would You Pay?

Say you buy a property by cashing in a £300,000 pension, and you expect that you’ll be able to live off the rent for the next two decades. You’ll be subjected to taxes that are 43% higher than a person who leaves their money in their pension and uses it to generate an income.

Now let’s say you chose to remove nothing more than the 25% tax-free lump sum from your pension instead. You decide to invest this in property via an ISA wrapper. You’d benefit from property price rises but avoid hefty taxes. Not only is there no tax on the 25%, but there’s no tax on the ISA either. Find out more by reading Simon Morris’ Guide to Property Investment.

Take Out 25% and Invest in an ISA Wrapper

In other words property specialist Simon Morris is suggesting that it may not be a great idea to cash in your entire pension pot and use it to invest in property. A wiser strategy would be to take out 25%, invest in property through an ISA wrapper and reap the benefits of property investment without footing an exorbitant tax bill.

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