Savings & Investments Part 5: Buy to Let

Rental income from property

In the UK we have had a long running love affair with property as an investment and, more recently, ‘buy to let’ has become increasingly popular.

On the face of it, there are significant advantages to using ‘buy to let’ as a means of providing income in retirement. There is the prospect of increased capital growth and rising rental income over time and, of course, the latter can provide a natural income in retirement.

However, there are also issues with using ‘buy to let’ in retirement:

  • The income is not guaranteed. If your tenants default on the rent or the property is unoccupied at times you may not receive the income you were expecting
  • You become a landlord and that brings with it a whole new set of responsibilities
  • Property is highly illiquid so if you need money quickly, over and above the rental income, this is not an ideal asset
  • The rental income is taxable. In contrast, some of the investments we have reviewed are very tax efficient
  • As you get older, you may not be able to manage and maintain the property personally and so you may need to pay someone else to do this.

It’s also worth mentioning that when you die the value of the property could be subject to Inheritance Tax on your death.

For all these reasons, ‘buy to let’ should be viewed with caution. At the same time, if it’s part of an overall portfolio, and you’ve carefully considered all the issues, it can be a rewarding addition to your retirement proposition.

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