SILVER LANDLORDS – Take the ‘belt and braces’ approach to protect your pension pot

As the UK Government attempts to make people take more responsibility for their future finances via pension reform this year, it’s widely predicted that many on the brink of retirement will look toward the buy-to-let sector; dawning a new era of ‘silver landlords’ from April 2015.

Are you thinking of accessing some or all your pension pot this year and investing it into buy to let? 

But don’t really know much about how the pension system works or where to start as a first time landlord …?

What with private renting taking over social housing for the first time in 25 years, buy-to-let investment has gone from strength to strength over the last two decades and is now a tried and tested way to maximise returns on your savings.

How will the new system work?

The pension system is being completely overhauled, so no matter how much you decide to take out from a defined contribution pension after retirement, withdrawals from your pension will be treated as income. So instead of being taxed 55% for full withdrawal as it has been in the past, for those aged 55 or over, from April 2015 the amount of tax you will pay on what you withdraw will depend on the amount of other income you have made in that year.

Key points include:

– 25% of all pension pots will remain completely tax-free. 

– ‘Defined contribution’ pensions and ‘defined benefit’ pensions can both benefit from the new system. 

– Instead of paying the 55% rate of tax when passing on their pension, those who die under the age of 75 will be able to pass on their unused contribution pension as a lump sum to a person of their choice tax free. 

– Those with unspent defined contribution pensions who die over the age of 75 can pass this on to a person of their choice, who will be able to take it as a lump sum. This will be taxed at 45% or as income and pay their normal rate of income tax.

So as a nation of renters and an estimated 18 million people potentially able to withdraw their entire pension and invest it into property from April, it stands to reason that you would also wish to fully protect your assets – so where should you start?

Take the Yellow Oak Inventories “Belt and Braces” approach.

Access free, independent and impartial guidance 

To be confident that you’re putting your pension savings to the best use possible, impartial guidance is imperative to make an informed and clear decision. The government website suggests using the internet, over the phone, or face to face at a Citizens Advice Bureau. Pension providers also have a duty to explain this to their customers who are approaching retirement age.

Mortgages 

Look for a mortgage provider who has made improvements to their policies, that reflect more choice for pensioners.

For example: In July 2014 specialist lender Precise Mortgages upped the maximum age from 75 to 85 that a buy-to-let borrower could be at the end of their term.

Enlist a good letting agent 

You are basically putting your life savings into this investment, so you want to be sure that it’s secure. Self-management can be extremely complicated and time consuming; not something many over 55 year olds will really want the hassle with. So by enlisting the help of a good letting agent this will provide you with peace of mind that your investment and lifesavings are being properly looked after, as well as dealing with complicated and tiresome issues. 

Research at least 3 agents before deciding on the one for you and make sure that they’re a member of at least one of the following professional bodies: ARLA (Association of Residential Letting Agents) NALS (National Approved Letting Scheme) UKALA SAFEAgent PLUS part of 1 of the 3 government backed tenancy deposit schemes; MyDeposits / The DPS / The TDS.

Accurate Referencing and Rent Guarantee Insurance

If you decide to go it alone without a letting or managing agent, apart from keeping up to date with all new and existing PRS legislation. 

If you’re a new silver landlord you need to understand the importance of thoroughly referencing potential tenants and rent guarantee insurance. 

There is no completely foolproof way of making sure your tenant won’t fall into rent arrears, so coupling accurate references with a good rent guarantee product will create a valuable safety net for all involved.

Independent Inventory

Not only will a thorough and independent inventory protect the condition of your property (plus any furnishings included in the tenancy) but it will help you to avoid disputes in the future too. Be sure that your inventory company is fully regulated, insured, trustworthy, experienced and impartial before enlisting their services.

In essence you are putting your entire life savings into property, so you need to be confident and happy that it’s in safe hands for the foreseeable future.

Discover why Yellow Oak Inventories is a great accompaniment to anyone interested in entering the UK rental market, by calling us today on 020 3713 4933.

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