The impact of Pension Freedom Day on the property market
Jason Orme, spokesperson for The Homebuilding & Renovating Show, comments on the possibility of seeing an overheated property market as a consequence of Pension Freedom Day:
Pensioners having increased access to their retirement funds might push property prices even further out of reach for certain types of houses. One would imagine that people over 55 looking to use their pension pots to produce a regular income would be interested in investing in buy-to-let accommodations (for example, in student areas). As we aren't creating anywhere near enough homes, this surge in demand will only increase the price of homes in these regions. The same will apply to holiday homes. In certain cases, elderly people might use some of their pension money to invest in building individual homes as developers or even for themselves to live in. An alternative they might consider is purchasing a buy to let property but this will make them liable for income tax on any sums they receive and they will have to pay capital gains tax on any increase in the value of the house should they come to sell. The tax rules around property incomes are the same as for income from other means so this decision needs to be carefully considered.
Michael Homes, spokesperson for The Homebuilding & Renovating Show, shares his tips on what to consider before buying a property for retirement:
1) Do your research
There are certain caveats relating to buying a retirement home depending on whether it is freehold or leasedhold so ensure you understand the rules prior to parting with any money. For example, with leased retirement blocks, you might be advised that your flat can only be sold to someone that is 55 or over. Seek independent legal advice and confirm that you can also resell on the open market, so that you rather than the management company will benefit from an uplift in property prices. Additionally, with this type of contract, your lawyer will explain that there are restrictions on renovations, alterations and landscaping so it is important to understand your rights before signing.
2) Age group
Moving into a retirement building is a great opportunity to form new friendships. Some properties are restricted to 55 and over but others are designed to cater for much older people who are still relatively independent and combine care facilities. It is fundamental that you investigate and liaise with the agent to establish what age groups are currently living within the block before purchasing your new home.
3) Fees
Establish whether you can afford a retirement property by finding out what service and maintenance charges are required for its upkeep, taking into consideration building insurance, water and fuel bills, ground rent (RPI linked), and council tax. If fees are high, your pension fund might not be sufficient so ensure that you can support your lifestyle before investing. A good way to do this is by using residual capital from the sale of a previous house to contribute to the annual costs. If you are buying off plan, ask the agent for an estimated breakdown of the charges and dates that instalments are due including a deposit that will need to be secured in advance, to help you set a budget.
4) Tax
Before selling your current home, consider your tax position. Rather than buying a retirement apartment/flat with money from the sale of a previous property, you can donate it to beneficiaries such as your children at any time. They could remortgage and lease it as a buy to let which would generate a new flow of income. If you live for seven years after gifting your house, it is exempt from Inheritance Tax. However if you continue to live in it rent-free for that time period, it's known as a 'gift with reservation of benefit' and you will be expected to pay this levy- call the Inheritance Tax Helpline for more information https://www.gov.uk/inheritance-tax/inheritance-tax-planning-passing-on-property
5) Alternative options
Rather than buying a retirement apartment/flat, discuss with your children whether they are open to the idea of adapting their own house for multigenerational use/purposes. This can be done by building a granny flat or converting a ground floor space into a bedroom and bathroom designed with accessibility. Alternatively, if your children have a large garden, they could create an annex within this area provided that the construction is only used by family and is not rented out to strangers. Planning permission is not required for any of these options and can be funded by the sale of the parent's previous residency, or by the children remortgaging their existing home. However, all scenarios are legally considered as a second property so you won't be exempt from council tax.
27-28 June, Surrey, Sandown Park, www.homebuildingshow.co.uk
Pensioners having increased access to their retirement funds might push property prices even further out of reach for certain types of houses. One would imagine that people over 55 looking to use their pension pots to produce a regular income would be interested in investing in buy-to-let accommodations (for example, in student areas). As we aren't creating anywhere near enough homes, this surge in demand will only increase the price of homes in these regions. The same will apply to holiday homes. In certain cases, elderly people might use some of their pension money to invest in building individual homes as developers or even for themselves to live in. An alternative they might consider is purchasing a buy to let property but this will make them liable for income tax on any sums they receive and they will have to pay capital gains tax on any increase in the value of the house should they come to sell. The tax rules around property incomes are the same as for income from other means so this decision needs to be carefully considered.
Michael Homes, spokesperson for The Homebuilding & Renovating Show, shares his tips on what to consider before buying a property for retirement:
1) Do your research
There are certain caveats relating to buying a retirement home depending on whether it is freehold or leasedhold so ensure you understand the rules prior to parting with any money. For example, with leased retirement blocks, you might be advised that your flat can only be sold to someone that is 55 or over. Seek independent legal advice and confirm that you can also resell on the open market, so that you rather than the management company will benefit from an uplift in property prices. Additionally, with this type of contract, your lawyer will explain that there are restrictions on renovations, alterations and landscaping so it is important to understand your rights before signing.
2) Age group
Moving into a retirement building is a great opportunity to form new friendships. Some properties are restricted to 55 and over but others are designed to cater for much older people who are still relatively independent and combine care facilities. It is fundamental that you investigate and liaise with the agent to establish what age groups are currently living within the block before purchasing your new home.
3) Fees
Establish whether you can afford a retirement property by finding out what service and maintenance charges are required for its upkeep, taking into consideration building insurance, water and fuel bills, ground rent (RPI linked), and council tax. If fees are high, your pension fund might not be sufficient so ensure that you can support your lifestyle before investing. A good way to do this is by using residual capital from the sale of a previous house to contribute to the annual costs. If you are buying off plan, ask the agent for an estimated breakdown of the charges and dates that instalments are due including a deposit that will need to be secured in advance, to help you set a budget.
4) Tax
Before selling your current home, consider your tax position. Rather than buying a retirement apartment/flat with money from the sale of a previous property, you can donate it to beneficiaries such as your children at any time. They could remortgage and lease it as a buy to let which would generate a new flow of income. If you live for seven years after gifting your house, it is exempt from Inheritance Tax. However if you continue to live in it rent-free for that time period, it's known as a 'gift with reservation of benefit' and you will be expected to pay this levy- call the Inheritance Tax Helpline for more information https://www.gov.uk/inheritance-tax/inheritance-tax-planning-passing-on-property
5) Alternative options
Rather than buying a retirement apartment/flat, discuss with your children whether they are open to the idea of adapting their own house for multigenerational use/purposes. This can be done by building a granny flat or converting a ground floor space into a bedroom and bathroom designed with accessibility. Alternatively, if your children have a large garden, they could create an annex within this area provided that the construction is only used by family and is not rented out to strangers. Planning permission is not required for any of these options and can be funded by the sale of the parent's previous residency, or by the children remortgaging their existing home. However, all scenarios are legally considered as a second property so you won't be exempt from council tax.
27-28 June, Surrey, Sandown Park, www.homebuildingshow.co.uk