Facilitating The Release Of Your Pension Funds

Using Your Pension To Buy Property? Everything You Should Know

September 26, 2017

If you have any questions or queries whatsoever about releasing a pension to purchase a property then this page is for you.

Matters Of Pension Release

Is It Possible To Release Your Pension Fund In Order To Purchase Property?

Yes. You can release up to 25% of your pension tax free: should you need to release more than 25% of your pension, you may be subject to taxes in line with the current rate of income tax.

Tax Implications Of Releasing A Pension In Order To Purchase Property

If you are releasing your pension fund for a buy-to-let:

Assuming you are releasing your pension (as a sizeable sum sufficient to purchase a commercial or residential property) then you will likely (to the point of “almost certainly”) have to pay income tax.

The new “pension freedom” rules enable private pension holders access to their entire pension pot from the age of 55 onwards, but as a tax free lump sum it is only possible to withdraw 25%.

So what happens when a private pension holder wishes to withdraw more than 25% (which is highly likely).

The rest of the amount of the pension that you withdraw would be added to the amount of income accrued for that particular year, and the tax will be charged at your “top rate” (it will be added on top of the income earned from that year).

Example In Practice:

If an individual earned £40,000 they would be a basic rate tax payer, If you then withdrew £50,000 from your pension fund, most of the withdrawal would be subject to 40pc income tax (because this would be in line with the current rate of income tax)

** Note as income tax rates change from year to year, this figure in the example would need to be adjusted accordingly to match the the tax rate from that specific period, so be careful with this information and cross reference it for time-dependent accuracy (our advisers’ would likely be able to help you with this in relation to your pension fund). **

Another factor with buy-to-let taxation

The earnings from the buy to let income are also subject to taxation (worth noting).


Taking into account that withdrawals from pensions are subject to tax, income produced by pension assets that are subsequently reinvested within the pension plan are not subject to taxation.

Moving On…

Capital Gains Tax (If It Is Not Buy To Let)

With a private pension you’re not subject to tax on any gains you make with property investments. For example, if your pension doubled one year, then tripled again a year later, these financial gains would be tax-free.

Capital Gains Tax If It’s Buy To Let

It’s different with buy-to-let. If the property you purchased with your pension fund rises in value and you sell that property for a profit, you will be subject to tax on the gains via capital gains tax.

(these are key differences people need to observe when considering pension release for property investment, there are major differences between investing in buy to let and more general property investment).

Your annual allowance for capital gains tax is currently £10,600. Gains above this are generally taxed at around 28%, however if you are a basic rate tax payer you will pay around 18%, however the earnings from the buy to let scheme may push your earnings into a higher tax bracket.

Note about capital gains tax: You will only be taxed on second properties, you will not be taxed on your main family home, this does not apply.

Issues Of Inheritance Tax

Tax applies to the following two income streams from a buy to let investment:

1) The earnings from the buy to let income
2) The profit from the sale of the property that was purchases as “buy to let”

If you decide to leave your buy to let property to your children, you will be subject to inheritance tax. It may be possible to pass on £1m of property to your children, but this only relates to the main family home, not to properties in addition to that.

Buy to let properties are considered part of the estate for inheritance tax purposes, however pensions themselves (not in the form of property are exempt from inheritance tax).

Another important note: If you die before the age of 75 your pension can be passed on tax-free, this applies even if you have taken an income from it, if you die over the age of 75, the pension fund still won’t be subject to inheritance tax BUT any income withdrawn from that pension fund thereafter will be subject to income tax.

We have advisers’ and experts that can provide further insight and guidance into all these tax and pension issues and queries, you may wish to speak with them to understand the most efficient strategies moving forward, and to find potentially advantageous ways to maximise and grow your pension fund, all on a no obligation basis.

So Should I Release My Pension In Order To Invest In Property?

The truth is this depends on the circumstances and your intentions around the investment, this article seeks to provide insight for purposes of entertainment and to provoke thought into making the smartest possible decisions with your retirement income, you may or may not find that investment of your pension into a buy to let or other property investment scheme may or may not be advantageous to you.

If you wish to discuss investment opportunities further, feel free to contact us for a “free pension review” using the form at the top of the page and one of our representatives will be in touch with you in due course.

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