In short, yes. You can potentially use your pension to invest in assisted living property once you reach the age of 55.
You can often use your private pension to buy a property of many different kinds in UK. Once you turn 55, you’re usually free to withdraw as much or as little as you need. But whether this is a good idea depends on various factors, such as your other retirement income and potential tax implications. Taking money from your pension early isn’t for everyone, as it might leave you with less to live on later in life.
Costs to Consider
If you’re planning a large withdrawal from your pension, be prepared for a possible hefty tax bill. You can take 25% tax-free, but the rest is taxed as income, so the taxman could take a significant portion. Take expert advice on the tax rules specifically for your situation though.
If you already own a home, you’ll pay an additional 3% stamp duty on any new property. For a £200,000 house, that’s an extra £6,000. Plus, there are the usual legal fees and other costs. To recoup the money taken from your pension, the property’s value would need to rise significantly.
Assisted Living Property Investments Specifically
With assisted living property, the main appeals at the moment are:
- We have an ageing population and as such the need for assisted living property is greater than ever and rising still
- With assisted living property investments, you don’t have to get involved in the day to day management. It’s hands off
- There are some guarantees regarding yield
Risks Involved
Your Pension: Taking money out reduces your retirement income in the event that the investment doesn’t pay off. With assisted living property, the risk is much reduced versus other types of property investments given the clear picture of yields and returns.
As a Landlord: You risk having vacant periods or tenants not paying rent. Government changes, like higher stamp duty, might also make property investment less attractive. Future changes could further impact profits. But with assisted living property and the surging demand, this is not the same risk
All Your Eggs in One Basket?
Pensions usually spread your money across different investments, reducing risk. Investing in property means relying on one asset to perform well. If the housing market crashes, you could lose a lot. Plus, your money is tied up in the property until you sell it, which can be a lengthy and costly process.
Withdrawing from your pension is a major decision with potential tax implications. What you do with that money is crucial, so it’s wise to consult a regulated financial adviser first.
What next?
If you want to know more about using money from your pension to invest in assisted living property, get in touch today and our experts will answer your questions.
