Portal Financial has revealed a significant increase in enquiries from people looking to access their pension to purchase a rental property since the so-called ‘pension freedoms’ were introduced 2016.

However, the advisory firm is warning anyone considering property as a retirement investment that there are significant costs involved, including tax on capital gains and income, as well as insurance, maintenance, repairs and an increased stamp duty for people with multiple houses from April this year. There could also be reduced profit margins following the government’s reform to tax relief on rental income.

Jamie Smith-Thompson, managing director of Portal Financial, said: “This generation has seen house prices rise drastically over the long term so it is clear to see why they are confident investing in rental houses. It is very easy to get swept along with the belief that property is the ultimate investment, providing both income and appreciating value. But the reality is that after paying tax on the pension withdrawal – which could be as high as 45% – and the various fees when buying the house including stamp duty and legal costs, the buyer is at a substantial loss and the property’s value must rise significantly just to be back at square one. For many landlords, the profit margin is wafer thin and void periods, unpaid rent or maintenance can mean losing money rather than earning an income.

“Recent announcements by the chancellor also suggest that buy-to-let is in the government’s crosshairs, so further changes and restrictions in the near future are definitely possible. Quite simply, if you are looking for an income in retirement and your finances are limited then the risks associated with becoming a landlord far outweigh the benefits for most people.”