Expat landlords at risk of property pension shortfall

Published:  15 Aug at 6 PM
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Tax changes are putting expat landlords at risk of falling profits on UK property investments.

As many as two million property investors, a good number of whom are expatriates, are at risk of a shortfall in rental profits due to tax changes. According to the National Landlords’ Association, a new method of calculating mortgage interest is discounting tax relief, leading to reduced profits on property investments and shortfalls on retirement incomes. Almost 80 per cent of landlords are utilising buy-to-let property investments to increase their retirement income.

Last April saw the first of three successive cuts in mortgage interest relief for landlords paying the higher tax rate of 40 per cent. The resulting halving of amounts claimed as business expenses and set off against profits will hit in by 2020. According to the UK Office of National Statistics, the retired household annual spend totals an average of £21,770, with landlords at home or overseas having to find around £15,000 as a top-up to the state pension in order to break even.

Well over a million retirees are using buy-to-let properties to boost their annual income to a reasonable amount, with a pension pot of some £300,000 needed to generate the required, missing amount. Buy-to-let has long been seen as a successful investment strategy for those not wanting to leave cash in a bank or buy a pension. According to the majority of retirement investors, all their money is tied up in rental property, with 68 per cent stating it’s the best way to ensure a comfortable retirement.

Financial advisors are now warning the changing tax regime will hit hard on landlords, reducing their profits and compromising the retirement plans of a significant number of investors. Some 25 per cent of buy-to-let investors are already in retirement, and a further third are coming up to retirement age. Experts believe now is the time to tackle the issues caused by the change in rules.

One scheme being put forward is government reduction of capital gains tax on the sale of investment properties by landlords, thus putting them in a different category than those who buy, redevelop and sell on sharply. Reducing capital gains tax would act as an incentive for expat landlords in particular to sell and reinvest, either in annuities or in lower risk, more liquid assets.
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