Buy-to-let investors have been hit hard by this Autumn Statement - but is it enough to tempt them back to pensions?

The competition between ISAs, buy-to-let properties and pensions products has never been fiercer. New freedoms mean that people are looking to the retail world to hold their cash post-retirement and many people now believe: “my property is my pension”.

In fact, the latest ONS data shows that almost 45% of us see a property as the best retirement investment, followed by a quarter who think it’s a pension.

Think your property is your pension? Think again

It’s important therefore for the pensions industry to keep an eye on what is happening in the retail market.

Some people planned to use buy-to-let properties to fund their retirement as an alternative to saving towards a traditional pension pot. However the Chancellor has continued the theme, set in the summer Budget, of making such investments less attractive from a tax perspective.

I believe there are other more tax efficient and flexible methods of saving for retirement”

In the summer the removal of the wear and tear allowance was announced. Previously, landlords of furnished properties could claim 10% of their rent as tax relief for wear and tear, but this is no longer the case. Instead, the allowance is being replaced by a system that only allows landlords to deduct costs they actually incur.

Also, the tax relief landlords receive on their mortgage interest payments was to be cut from 40% or 45% to 20%.

In the Autumn Statement the Chancellor of the Exchequer announced that the purchase of additional residential properties, such as buy-to-lets, will be subject to higher stamp duty, 3% above the current rates. Additionally and under consultation, capital gains tax on the disposal of a second property will be required to be made within 30 days of the completion of the disposal as from April 2019.

Make sure that if you are still working you have maximised your pension savings”

Jonathan Watts-Lay, Director, WEALTH at work said: “It is clear the Chancellor has targeted the buy-to-let market and is reducing the previous tax breaks. These changes may put off new entrants to the market who were relying on the tax breaks to make the investment viable.

He continues, “Although there are other considerations to take into account, I believe there are other more tax efficient and flexible methods of saving for retirement.

“Make sure that if you are still working you have maximised your pension savings on which valuable tax reliefs are available, depending on individual circumstances. Making use of generous ISA allowances also tend to feature high on most agendas and both spouses should utilise the annual tax free limits.”

A typical pension fund has returned 2308% since 1983 while residential property has returned 644%”

Kate Smith, regulatory strategy manager at Aegon said: “[The] news that buy to let properties will incur additional stamp duty will reduce its attractiveness for retirement planning.

“The announcement highlights how all investments come with costs and as with so many things in life, its better not to put all your eggs in one basket.

“While many people will have done very well from their property if you look at the figures a typical pension fund has returned 2308% since 1983 while residential property has returned 644%.”