On today’s episode of pub talk, we discuss argument on if buy-to-let property being a better option for retirement income or investing in a pension. Since pension freedom there has been a great deal of pension withdrawal to fund property purchase. According to the HMRC, the total value of taxable payments withdrawn flexibly from pensions since flexibility changes were introduced in 2015 has exceeded £59 billion.
In 2021 to 2022, £10.6 billion in taxable payments was withdrawn from pensions flexibly. This has increased from £9.6 billion in 2019 to 2020 and £9.8 million in 2018 to 2019.
A core interesting factor about this conversation was the funding to purchase buy-to-let came from one of the individual’s accessing his pension flexibly. Pension has been used as a vehicle to raise the fund required to purchase property. As an observer what quickly jumped out to me was the tax deducted when accessing benefits and how this was never a part of the conversation.
As an example. Here are some of the points a financial adviser would have considered.
- One-off or ad-hoc payments, or first payments of regular pension income, are normally taxed on the ‘Emergency month 1 basis’
- The emergency tax code will often result in an overpayment of tax – but for additional rate taxpayers, it could result in an
- You can reclaim any overpayments of tax on one-off or ad-hoc payments. Reclaim can be done online or by paper. Forms can be found on HMRC website and help from a financial adviser may be required to identify the right forms.
- Regular withdrawals allow HMRC to provide relevant tax codes which may correct the overall position by tax year end
Let’s explore both options
https://www.mandg.com/pru/adviser/en-gb/insights-events/insights-library/pensions-buy-to-let
Our believe is the best option would be dependent on the personal circumstances, needs and objectives of the individual. There is no one size approach that fits all and highlights the importance of advice on this matter.
Do you need help with you buy-to-let portfolios or pension? Please speak to one of our financial planner