Pension freedoms as a source to buy-to-let investment

Andrew Turner, chief executive at buy-to-let broker firm Commercial Trust, explores factors to consider when investing pension pots into rental property for income.

Pension freedoms as a source to buy-to-let investment

In an environment of low interest rates, which have affected many pensioners’ annuities, the term ‘pension pot landlords’ has been coined to describe an increasing number of people looking to derive a retirement income from buy-to-let investment.

The pension landscape changed in April 2015, when members of defined contribution (DC) pension schemes were given a broader variety of options when taking their pension benefits, including the opportunity to access the funds as cash.

Recently there has been renewed discussion of pension freedoms, inspiring a new generation to consider buy-to-let investment, and whilst the private rental sector offers plenty of attraction, there are a number of factors that would-be investors should take into consideration.

In simple terms, profit from buy-to-let is achieved if the rent charged to the tenant exceeds the cost of the mortgage repayment and any other costs associated with the property (e.g. letting agent fees, necessary repairs and upkeep, electrical and gas checks etc.).

Over the long term, owning the property may also attract capital growth.

These factors are subject to change, so it is vital to have absolute clarity on all financial implications prior to deciding to invest and over the course of your time as a landlord.

Factors to consider with buy-to-let

There are no guarantees regarding returns from any investment. All options require considered forethought and planning and, for the buy-to-let industry, the last two years have seen enormous change.

As such, it is vital to seek the right professional advice, so I urge anyone new to buy-to-let to seek professional financial and tax advice before making the leap into becoming a landlord.

Below is a summary of some of the considerations for first-time landlords:


Your tax position is an important aspect. There have been a number of tax changes for buy-to-let landlords over the last couple of years and it is important to fully understand their impact on your prospective investment returns.

Any landlord earning an income in excess of £10,000 per year will be required to file tax returns digitally to HMRC by April 2019, if they are subject to VAT. This rule extends to non-VAT “businesses” or individuals by no earlier than April 2020. Under HMRC’s proposed ‘Making Tax Digital’ initiative, landlords will eventually be expected to update HMRC electronically, on a quarterly basis.

Financial planning

Create a financial plan ahead of investment to identify: upfront costs (such as the deposit, stamp duty, renovations before anyone moves in); contingency plans should the property lay uninhabited for periods of the year; broker, lender or letting agent fees and income.

Investment strategy

How will you invest? Will you buy one property or more than one property? Do you see multiple rental incomes as a benefit or a risk, if you were unable to find tenants? What are your short and long-term objectives? Rental income, capital growth, or a bit of both? Have you assessed the risks of losses as well as looking at the potential benefits?


Location is an important consideration, especially if you are planning to manage the property yourself. However, letting agents can equally play a huge role in sourcing tenants, carrying out the necessary administration, collecting rent and keeping you informed of your legal obligations.

Property maintenance

You must be willing (and able) to spend money on your investment property throughout your ownership of it. This could include repairs but also ensuring that you remain compliant with issues like the new Minimum Energy Efficiency Standards (meaning your property must have a minimum Energy Performance Certificate (EPC) rating of E, by April 2018 (for new tenancies) or by April 2020 for all tenancies. Similarly, the Smoke and Carbon Monoxide Alarm (England) Regulations 2015 require private sector landlords to have at least one smoke alarm installed on every storey of their properties and a carbon monoxide alarm in any room containing a solid fuel burning appliance (such as a coal fire or wood burning stove). It is also the landlord’s obligation to ensure that the alarms are in working order at the start of each new tenancy.


What sort of tenant are you looking for? A family, student(s), young professionals, couples, people on benefits, corporates? Will you find and conduct tenant checks, or will you secure the services of a letting agent?

Securing finance

Once you have decided to become a landlord, do you have the time and resources to research the market comprehensively and find the best rate? A specialist broker could help to establish your goals from rental property investment and the best products available for your circumstances, plus what the lender will require from you.

A business

To conclude, there are many things to consider when contemplating whether investment in bricks and mortar is the best way to spend your pension-pot.

Ultimately, buy-to-let investment is a business and whilst there are support services available that can help, it is vital to have a clear picture of what you are getting into and your landlord obligations.

So in the first instance, I would urge anyone considering investing in buy-to-let to seek appropriate professional advice on all aspects involved, whether that is with a financial advisor, tax specialist or letting agent.

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