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Will abolishing lifetime pension allowances hurt buy to let?

A tax expert claims the government’s move to abolish the lifetime allowance for pension contributions may damage the buy to let sector.

Chancellor Jeremy Hunt announced the measures of his Budget describing it as a 'budget for growth'. The key points focused on employment, childcare, business support and pensions. 

It was unveiled that the lifetime allowance - the total amount workers can accumulate in their pension savings before tax - has been abolished. Adding to this, the pensions annual tax-free allowance will increase by 50 per cent from £40,000 to £60,000. 

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Cornerstone Tax chairman David Hannah says many people who were subject to this limit, actually went out and invested capital in the private rental sector, because that was the only way to guarantee topping up their income, which otherwise may have been inadequate in retirement. 

The removal of the lifetime allowance now provides individuals with more options in terms of where they invest their pension, causing buy to let properties to become a less desirable option.

Hannah says a study conducted by the National Landlords Association found that 40 per cent of landlords in the UK are aged 55 or over and more than half of these landlords consider their rental income to be a key part of their retirement income. 

Demonstrating the potential benefits of investing in a buy to let property for retirement planning, a recent report shows that 62.24 per cent of buy to let landlords state they have experienced an increase in demand for their rental properties over the last 12 months as 45 per cent of landlords stated that they plan on investing in more property over this year.

Hannah says: “I think one of the best measures announced from the Budget is the scrapping of a lifetime cap on a pension fund which has been held at the same level for about 10 years. 

“Now, we have the real prospect that people such as senior executives, entrepreneurs, and other high-earning individuals will have a no limits pot that they can put into, which is great, it will provide them with more flexibility and options for their pension.

"However, this could have a knock-on effect on the buy to let market … What we probably need is a liberalisation of the pension funds and investment rules. 

“If all that money is going to flow into pension funds, it's got to be invested in someone. Why not liberalise how you can invest and allow you to invest in yourself or in private companies, because currently, you can't do that. 

“This could also see a rise in investment in small businesses in the UK providing them with a platform to grow - such as those in the construction sector which could aid the undersupply of properties.

"The problem is going to be for pensioners who are already pensioners who don't have any earned income anymore, they can't take advantage of this - they will feel stuck with their current pension. 

“For people in their 40s or 50s, who may feel that they're underfunded, or their lifetime allowance wasn't enough, they now have more opportunities whereas previously, they weren't given a choice." 

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    Anything is better than being a landlord.

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    Fair comment. It's certainly a lot more difficult than it was 10 years ago!

     
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    Not sure this will stay under the next Labour government 🤔

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    It won't, it will be gone within weeks of the next government

     
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    Reeves has already come out and said they want to reverse it. But just keep it for doctors because obviously it's all about the NHS. Nothing else matters.

     
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    whether abolishing it is the right thing to do or not, it is just nuts that the legislation around long term pension saving is played around with, and now looking like it will be politicised. how can anyone plan for the long term when one minute something is removed, then the next re-applied. Crazy

     
  • Peter England

    Agree that this budget change is simply wrong and will probably redirect funds to the pension rather than invest in buy to let. What it will do is allow those service companies directors and small companies that own property to take out £60k a year from their companies income as a tax free payment into their pension fund, so will probably benefit many in the buy to let market. I really don’t understand why Hunt didn’t give this tax break to the NHS pension scheme (like judges)

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    Peter
    I see that as wishfull thinking. I see the budget as favouring female politicians and also a punishment for Brexit. Hunt was opposed to Brexit and wanted covid restrictions increased. He has big family ties to China, very odd for a conservative to be so close to communists.

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    What I find incredible is the Brain dead reaction of Starmer, every idea/policy that the Government put forward, he opposes for the sake of it. You may say that’s what Politicians do, but he takes it to a new level. The Country/Financial markets need some stability and assurance, not this silly Ping-Pong game. The Man is a complete fool.

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