The National Landlords Association (NLA) in the UK has expressed fears that the recent changes to the way the buy-to-let properties are taxed could lead to the next “pension crisis,” as property owners are increasingly depending on their residential assets to save for their retirement years.
Richard Lambert, CEO, at the NLA, the leading landlord body in the UK, said in a statement, “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.”
The NLA is backing its apprehensions using reliable data. It is said that 71 per cent of landlords – approximately 1.8 million individuals in the UK – are reliant on their residential property investment for their retirement. Besides, the findings from the Mintel consumer market research report show that buy-to-let continues to be viewed as a safe way to save for later life, with almost 7 in 10 (68 per cent) people saying it represents a good way to plan for retirement.
According to the Office for National Statistics (ONS) estimates, a retired household spends £21,770 every year with a shortfall of more than £15,000 (taking the full basic state pension of £6,359.60 into account). To make up for the annual shortfall, savings of £300,000 is necessary. This, according to the NLA, is prompting people to opt for investment in residential property for a secured retirement life.
The NLA data showed that around a quarter (27 per cent) of the UK landlords were already retired. Around 37 per cent of the landlords are aged 55 or over and the taxation changes would impact them in the long-term. It has urged the Government to help those affected “adjust their financial plans by tapering the amount of capital gains tax (CGT)”.
According to the NLA, landlords, who invested in residential property for long-term were different from short-term speculators, who bought and developed properties. “This should be recognised when it comes to how much capital gains tax they pay when they decide to sell the property,” the NLA contended.
It is not always in the best interests for landlords to continue to manage residential property into retirement life. A capital gains relief like the NLA proposed 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.