Should I keep my existing pension or transfer to a property pension?

New pension legislation came in to force in April 2015 with The Daily telegraph stating that they had expected as many as 32,000 people to pull the plug on their pension and start investing in buy-to-let property. But is it a wise move?

The new changes are allowing people aged at least 55 to cash in their pension fund and transfer it all into their personal bank account. Sound like a familiar plan? Well, just because this is the expectation for many, it doesn’t mean it’s the most lucrative for you and it’s probably not the best move due to tax implications!

At first glance this seems at odds with what is on offer, but the Chancellor has made these changes so that the government gets their pay day sooner. If people support the changes and choose to cash in their pension, then they will pay a substantial amount of tax for the benefit of doing this.

Take a moment to consider the unique tax breaks that you receive from a pension, but would lose by transferring the money into your personal bank account. By keeping your money within your pension you pay no capital gains tax on sale of a property and no tax on the rental income that you receive during ownership. There are plenty of property investments you can make without having to cash in your pension, such as the popular choice of student accommodation.


Understand the tax implications of cashing in a pension fund.

  • When you reach 55, 25% of your pension fund can be extracted tax free.
  • The remaining 75% is treated as supplementary income and will be taxed.
  • A withdrawal to fund a deposit on a buy to let property means paying tax at the outset.
  • If your income rises to over £100,000 you lose your personal allowance too.

We haven’t even started to count other impending costs such as buy to let void periods when there isn’t a paying tenant in the property, maintenance and legal fees to buy including stamp duty. Why would you want all that money to go into government coffers?

The best advice is to take time to plan your strategy. We’ve put together a small table at the end of this article to help you clearly understand the options and the drawback of transferring your whole pension out in one transaction.


Avoid the tax and invest in property using a property pension

A popular choice among experienced Landlords and Developers has been investing their pension fund directly into property without cashing the pension in. This saves the tax levy element.

The choice to invest in property is often taken because they already have the knowledge in the property field; they understand the risks and the potential benefits. And investing in property isn’t difficult, in fact it’s far easier to understand than stocks and shares. Let’s face it if you were given £100,000 and told to invest it, would you put it in the stock market or property? Unfortunately many people that have pensions leave them unattended in a share fund when really they should be considering all options available to them, including property.

The only drawback with using a pension to invest in property is that it is not possible to invest in residential buy to let. Any property that you choose to invest in when using your pension must be of a commercial nature. Residential elements are only permitted if they can be verified as an integral part to the property e.g. gatekeeper accommodation. But a vast number of opportunities still exist for you to invest into property; student accommodation, warehouses, storage facilities and high street shops just to name a few.

If you’re thinking this isn’t for you because your pension fund is too small, think again, you can invest in property using your pension if its value is as little as just £25,000.


Who can I talk to for help?

Property investments are our business, and we specialise in helping people that want to invest in property using their pension. So don’t join the herd in a mass withdrawal, think and consider all your options by talking to us first.