A reader wants to know if their two buy-to-let properties will suffice for their retirement savings
In our weekly series, readers can email any question about their finances, to be answered by our expert, Rosie Hooper. Rosie is a chartered financial planner at Quilter Cheviot Financial Planning and has worked in financial service for 25 years. If you have a question for her, email us at money@inews.co.uk
Question: I’m approaching 60 and have a small workplace pension, but also own two buy-to-let properties which are each worth over £200,000. I consider these properties to be my pension, as I own them outright and could sell them to fund my retirement. Are there any risks to this strategy?
Answer: Owning two buy-to-let properties outright and seeing them as your retirement fund makes sense on paper. Property can give you a steady income stream and a solid asset base. But relying on it entirely comes with a few risks and challenges that are worth thinking about.
One of the biggest issues is that you’re not fully in control of your net profit. Rental income and property values can shift based on market trends, economic conditions, and – perhaps most importantly – government policy.
While the latest Budget left capital gains tax (CGT) on property alone, there’s no guarantee this or future governments won’t take a different approach. Taxation policies change and being too dependent on property leaves you exposed to those shifts.
Then there’s the lifestyle factor, do you want to be managing tenants, dealing with repairs, and navigating ever-changing landlord regulations when you’re retired? Some people love it, but if you’re hoping for more freedom, it’s worth weighing up whether being a landlord in later life suits your plans.
A pension offers far more flexibility – no tenants, no maintenance, just a straightforward income stream.
If you haven’t already, check whether you’re making the most of your workplace pension. Many people stick with the minimum contributions, but if your employer offers matching or salary-sacrifice options, increasing your contributions could be a tax-efficient way to boost your savings.
Liquidity is a major consideration. Property can provide a good income, but if you need to take out a lump sum for any reason, selling a house isn’t exactly quick or easy. If the market isn’t in your favour, you could end up taking a hit on the price.
By contrast, pensions give you the flexibility to take regular withdrawals or a one-off lump sum when needed, making them much more adaptable.
And let’s not forget inheritance tax (IHT). If your properties make up the bulk of your estate, you’ll need a plan in place to avoid leaving your family with a hefty tax bill. Deciding whether to sell properties gradually or hold on to them for rental income will affect how you structure your finances.
If you do sell a property, having a plan for the proceeds is essential. One option is to spread the money across ISAs and General Investment Accounts (GIAs), providing liquidity and flexibility in withdrawals. On-shore bonds can also be useful for tax-efficient income generation.
Premium bonds and cash savings may be worth considering for short-term accessibility, but for longer-term growth, investing in a diversified portfolio is often a smarter move. Gilts are looking attractive again, particularly for higher-rate taxpayers, as those bought under par can offer CGT-free gains on sale.
Their appeal comes and goes, but for some, they provide a tax-efficient alternative to holding large amounts in cash or reinvesting in property.
So, while property can be a great asset, relying on it completely for retirement comes with risks. A balanced approach which mixes pensions, ISAs, bonds, and other investments can give you more security, flexibility, and peace of mind.
It’s always worth reviewing your options with a financial adviser to make sure your retirement plan is working as hard as possible for you.