Income from property

What are your options if you want to use property to give you an income in retirement?

Using property

Once retired, you may find that the State Pension, your own pension and any investments are not enough to give you the income you want.

You may want to tap into the value locked in your property to give you the money you need.

Next to a pension, property is probably one of the largest assets you may own. For many, it could be worth more than their retirement savings.


Property options

There are a number of options that you may wish to consider.


Buy-to-let property

As well as your own home, you may have thought about property as another way of funding retirement, and a buy-to-let property could be a source of retirement income.

However, to use this type of property as a source of income you would have to borrow money or use an existing lump sum to buy it. Some retirees have considered using the tax-free lump sum from their pension to buy a property.

There are a number of considerations, including:

  • purchase costs and legal fees
  • stamp duty – including an additional 3% for buy-to-let and second properties
  • renovation and maintenance expenses
  • letting agency fees
  • difficult tenants, including rent arrears and damage costs
  • any rental income or increase in the property value could be subject to taxes.

Property can be considered complementary to other sources of money in retirement, alongside pensions and ISAs.


Downsizing

In simple terms, you could sell your house to release money.

If your circumstances allow, a smaller, less expensive home could be an option. You could also consider moving to an area with lower property prices.


Rent a room

If you have space in your home, you could consider renting out a room. The Government provides a tax break when you rent a furnished room in your home.

You could earn up to £7,500 per year tax free using the Rent a Room Scheme.

Of course, it isn’t always possible or desirable to have somebody else living in your home.


Equity release

Equity release lets anyone over 55 to draw on the value of their own home, tax free, without having to move.

You can use the money for whatever you want - a project, holiday, car or to supplement your retirement income.

The 'equity' in your home is the difference between the value of your property less any borrowing (mortgage) you still have. If you no longer have a mortgage, you have 100% equity although the amount you can borrow will generally be restricted to a proportion of the available equity.

As well as the need to take professional advice when arranging equity release, we would also suggest that you discuss this with your family. The main impact of equity release is a reduction in the value of your estate.

Equity release allows you to take some of that value and in most cases you wouldn’t be required to make any regular repayments, unlike a normal mortgage. The amount you borrow is repaid from the sale of your property at a later date.

You can find out more about the different types of Equity Release from the Equity Release Council who are the industry body for the equity release sector.


Not sure where to start?

If you don’t know what to do about retirement or pensions, let us help. We’ll explain the basics and give you all the information you need to get started.

Retirement explained

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The Pension Wise service is free and impartial guidance to help you understand what you can do with your pension pot.

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