Landlord campaigners are warning that tax changes could trigger a massive property pension problem for almost 2 million buy to let investors, many of whom are expats.
Nearly 8 out of 10 landlords say they are relying on rental profits to boost their retirement income.
The National Landlords Association (NLA) argues that a new way to calculate profits that discounts tax relief on mortgage interest for landlords will reduce those profits leaving buy to let investors with a retirement income shortfall.
The first of three phased cuts in mortgage interest relief for higher rate tax paying landlords (40%) started in April and will half the amount they can claim as a business expense to set off against rental profits by 2020.
The NLA has taken official figures from the Office of National Statistics that reckon a retired household spends an average £21,770 each year. After deducting the state pension, landlords need an income of £15,000 a year to break-even.
Reliant on property
A savings pot of £300,000 is needed to generate the missing money, but instead of putting money into the bank or a pension, 1.8 million landlords have staked their money in buy to let property.
Investors say that all their cash is tied up in property, with 68% believing buy to let is a good way to finance their retirement.
“As a consequence of government policy over recent decades almost 2 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,” said NLA CEO Richard Lambert.
“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”.
Call to cut CGT
Lambert has called on the government to help by reducing the amount of capital gains tax due if landlords sell their investment properties.
“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 capital gains tax they pay when they decide to sell,” he said.
“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.”