Should I wait to invest in buy-to-let?

Q I'm 44 and thinking of investing in a buy-to-let property as part of my long-term pension planning. I would probably take a 40% mortgage and would currently not wish to take any rental profit as income as I'm a 40% taxpayer.

I've recently read that a major pension overhaul is planned for 2006 so should I delay doing anything until April next year?

SW

There could be considerable tax advantages for you by delaying the purchase of a buy-to-let property after April 5 next year. As you have read, the radical change in the personal pension rules means that you will be able to purchase a residential property via your pension fund.

As a 40% taxpayer you will be able to buy the property with a hefty tax rebate. For example a £100,000 house would cost only £60,000 by the time the tax relief is claimed. In addition any rental income, received by the pension fund, will be tax free and there will also be no capital gains tax if the property is sold for a profit.

If this seems too good to be true, a few words of caution are needed. For a start the amount of money that can be borrowed to buy a property will be restricted to 50% of the fund. It should also be remembered that the property will be owned by the pension fund, not you, so any money earned can only be used to increase the value of your pension and cannot be realised until you "vest" the pension - at the minimum age of 55 years from 2010 onwards.

Then there are the potential problems, and expense, in setting up a Sipp (Self Invested Personal Pension) to buy the property, which may not be possible if you are in a company pension scheme as there will still be restrictions on the amount you can contribute to an additional pension plan. It would be well worth consulting an adviser specialising in pensions as there are all kinds of hidden dangers.