Landlords are too reliant on their buy-to-let properties to fund their retirement and have not taken into account the impact of changes to the way buy to let is taxed, warns the National Landlords Association (NLA).
The UK’s largest body of private residential landlords reports that more than three-quarters (77%) of landlords – or around 1.8 million people – admit that they are relying on their property investments to fund their retirement.
This is backed up by consumer research on buy-to-let mortgages conducted by Mintel, which reveals that 68% of those considering investing in buy to let believe it to be a good way to save up for retirement.
Many people are turning to property to provide an income in later life because of a shortfall in how much they need over and above their state pension, says the NLA. It points out that figures from the Office for National Statistics estimate that a retired household typically spends £21,770 a year, while the basic state pension is just £6,359.60 a year – leaving a shortfall of £15,000.
Richard Lambert, chief executive of the NLA, says: “As a consequence of government policy over recent decades, almost two million people are reliant on their property to fund their later years, but the changing tax regime will substantially reduce the income they receive from these investments and so compromise the retirement plans of a significant number of hard-working people.”
“Around a quarter (27%) of UK landlords are already retired, and 37% are aged 55 or over, so there is a pressing need to tackle these issues without delay,” he adds.
The NLA is calling on the government to taper the amount of capital gains tax (CGT) landlords pay when they sell their property, depending on how long they have owned and let it out for in order to reduce the tax liability when properties are being sold to provide retirement income.
It also wants the status of residential property to be recognised as a pension investment. Currently, residential property investments are excluded from tax-efficient savings products such as Self Invested Personal Pensions (Sipps). To benefit from a Sipp, property can currently be held in collective investments, such as Real Estate Investment Trusts (Reits), but the NLA points out that these have not been that successful to date.
Incentives to sell up
Mr Lambert adds: “Landlords who have invested in residential property for the long term are different from short-term speculators who buy and develop properties, and this should be recognised when it comes to how much CGT they pay when they decide to sell.
“It is not always in the best interests for landlords to continue to manage residential property into later life. A capital gains relief like we propose would provide an incentive to sell, allowing people to sell poorly performing properties and potentially purchase an annuity or invest in more liquid, lower-risk assets to fund their retirement instead.”