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Buy-to-let investments are set to land retirees with big tax bills

9th December 2014 Print

Major changes to pensions could potentially be bad news for retirees looking to invest in buy-to-let property, as they could be hit by five separate taxes, according to Newby Castleman Chartered Accountants.

The Government’s annuity reforms, which are due to be introduced from April 2015, are generally seen as good news for retirees, as they allow for greater flexibility in planning for the future by allowing individuals to withdraw their pension as a lump sum.

As individuals are soon to have access to their pension pot and the ability to withdraw large sums of money for the first time, many will be looking towards property as a sound investment.

However, Newby Castleman is warning of five separate taxes that make property a less attractive investment opportunity for retirees.

Ian Fawcett, Tax Partner at Newby Castleman, comments: “There may be many retirees who are considering investing in a second property once the annuity reforms kick in, however we are advising clients to be wary, as they face paying further tax bills.

Firstly, income tax will be charged when the money is withdrawn from the pension, the second tax comes from the stamp duty they will most likely pay on the property they choose to purchase with further income tax being payable on any rental income they receive from the property.

Individuals then face the prospect of paying capital gains tax if they decide to sell the property, as well as inheritance tax if the property is passed on.

While we think the Government’s annuity reforms are a positive change for retirees and provide more flexibility when planning for the future, our advice to individuals is to be cautious when looking at potential investment opportunities and to consider their options very carefully in order to get the most out of their pension pot.”

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