Property vs pension – what’s best for your retirement? The attractions of buy-to-let are waning, claims expert

‘My property is my pension’ is a popular notion, but what is the reality? Ian Dyall, head of estate planning at Tilney, thinks property fans are overlooking the drawbacks of giving buy-to-let investments too big a role in retirement plans.

Retirement planning: ‘My property is my pension’ is a popular notion, but what is the reality?

The British have a long love affair with the idea of owning property as a tangible evidence of wealth, but can a buy-to-let investment ever play a leading role in your retirement plan?

Owning a second property is regarded by many as a long term savings fund route, sometimes in preference to pension investing.

When used as part of an overall investment strategy, property certainly has a part to play.

People are attracted by the gains they have made on property in the past but a big part of the reason that property appears so profitable is that your investment is leveraged.

This means, for example, that on a £300,000 property you might put down a 10 per cent deposit of £30,000, but you get growth on the £300,000.

Ian Dyall: 'While second properties were once seen as a crown jewel of an investment, they have become a lot less attractive in recent years'

That’s great when interest rates are low and things are going well financially, but it is a risk when things don’t go so well, particularly where some people have very large loans spread over multiple properties.

While second properties were once seen as a crown jewel of an investment, they have become a lot less attractive in recent years due to a series of tax changes.

There’s now an extra 3 per cent stamp duty on second properties and capital gains tax is payable at 28 per cent on property rather than 20 per cent for other assets for higher rate tax payers.

In addition to this, from April 2019 CGT will be payable within 30 days of sale whereas at present it is payable in the January following the end of the tax year of disposal.

The Government is also in the process of eliminating tax relief at higher rate on mortgage interest. From April 2020 there will only be basic rate relief available.

Wear and tear relief, where people could claim relief of 10 per cent of the rent on furnished rental properties whether they spent that amount or not, has been abolished. This is now limited to actual spending.

Finally, for properties you once lived in the period for which you could claim private residence relief after leaving the property was reduced from three years to 18 months.

Aside from the tax changes there are also the issues that have always applied to property. For example, property is illiquid which means that it can be difficult to realise in the short term and thus needs to be used in conjunction with other more liquid investments.

It is also notoriously difficult to sell in an emergency.

Rental income is a good source of funds but care needs to be taken if there is a potential for a period of non-rental, particularly if the rent is required to cover the mortgage.

There is also the hassle of maintenance to consider, the potential of poor tenants and the running costs - insurance, agents fees, replacements, decoration, repairs and so on.

You will also have to pay income tax at your highest rate on any rent collected.

Meanwhile, a pension has many tax advantages. You have tax relief at your highest rate on contributions, no CGT on gains and no income tax on income.

In addition, 25 per cent of the fund is tax free when taken and it the remaining fund is not subject to inheritance tax on death, whereas your property will form part of your estate.

The rest of the fund is tax-free if you die before the age of 75, and income tax is payable by your heirs as they with draw the funds if you die after that.

The funds are much more accessible after retirement and the obligation to buy an annuity has gone.

When assessing the returns made on property people often look purely at the rental yield and the gain in the property’s value.

Once they take into account expenses, periods that the property is empty and tax due the figures can look very different.

Property can have a role in a fully diversified investment strategy, but I would warn against it playing a major part in a retirement plan, particularly where large mortgages are involved.

As always, it is best to speak to a financial planner to fully understand all your options in this area.

Russia's unstoppable nukes: Putin reveals new nuclear missiles that cannot be intercepted and can strike almost anywhere in the world

Vladimir Putin has revealed that Russia has a new nuclear weapon that is 'immune to interception'
Russian president said his nuclear-powered cruise missile is able to penetrate any missile defence
He said his arsenal includes a 'fantastic' nuclear-powered underwater drone and a hypersonic missile
Giving his state-of-the-nation address the President called Russia's nuclear scientists 'the heroes of our time'

President Vladimir Putin has announced that Russia has tested an array of new nuclear weapons 'invulnerable to enemy interception' in a speech where he praised scientists behind the arsenal as 'the heroes of our time'.

In his annual state-of-the-nation speech in Moscow, Putin said the weapons include a nuclear-powered cruise missile, a nuclear-powered underwater drone and new hypersonic missile and showed video footage the launch of a new heavy intercontinental ballistic missile on big screens.

The video footage also contained a computer generated sequence showing the potential power and reach of the new rocket, which included bombs raining down over the U.S. state of Florida.

During his speech, Putin said the creation of the new weapons has made NATO's U.S.-led missile defense 'useless,' and means an effective end to what he described as Western efforts to stymie Russia's development.

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Launch: President Putin also showed the crowd video footage of a test of the new Sarmat missile, carried out last year

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A frame grab take from a handout video footage provided by official website of Russian President kremlin.ru shows a submarine launching an unmanned submersible with an innovative nuclear engine demonstrated on displays during Russian President Vladimir Putin's address to the Federal Assembly

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Bragging: Russian President Vladimir Putin boasted that Russia had made a cruise missile 'able to reach almost any point in the world' that could penetrate any missile defence

He said: 'I want to tell all those who have fueled the arms race over the last 15 years, sought to win unilateral advantages over Russia, introduced unlawful sanctions aimed to contain our country's development: all what you wanted to impede with your policies have already happened.

'You have failed to contain Russia.'

Speaking of the new arsenal, Putin said that the nuclear-powered cruise missile tested last fall has an unlimited range and high speed and maneuverability allowing it to pierce any missile defense.

The Russian leader said the high-speed underwater drone also has an 'intercontinental' range and is capable of carrying a nuclear warhead that could target both aircraft carriers and coastal facilities.

He said its operational depth and high speed would make it immune to enemy intercept, adding: 'It's just fantastic!'

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Hitting their target? Social media users were quick to point out that this computer generated sequence appears to show missiles raining down on the U.S. state of Florida

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For comparison: A satellite image of Florida was shared on Twitter alongside Putin's nuclear video

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That's one big nuke: Footage showed the preparations ahead of the test launch of Russia's latest nuclear missile

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Ready to take off: The launch site is covered in snow as the test is prepared in the video showed by Putin during his speech

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Up and away: It is not know where the test was carried out, seen here successfully launching into the atmosphere

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Flying high: A computer generated missile is seen separating and flying above the Earth's atmosphere in the video

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Wide reach: An illustration from the video appears to showcase that Russia's new missiles can strike 'anywhere on the planet', as claimed by Putin

Putin added to applause that names for the nuclear-powered cruise missile and the drone haven't yet been chosen, and suggested that the Defense Ministry run a nationwide contest for the best names.

The President accompanied his statement to an audience of hundreds of senior officials and lawmakers with videos and computer images of new weapons, which were shown on giant screens at a conference hall near the Kremlin.

'No one in the world has anything like that,' he said. 'It may appear someday, but by that time we will develop something new.'

The Russian leader said that another new weapon called Avangard is an intercontinental hypersonic missile that would fly to targets at a speed 20 times the speed of sound and strike 'like a meteorite, like a fireball.'

'This makes it absolutely invincible for any forms of air and missile defence,' he boasted, calling it an 'ideal weapon'.

Putin said that Russia also tested a new heavy intercontinental ballistic missile, called Sarmat, with a range and number of warheads exceeding its Soviet-era predecessor, known in the West as Satan.

He praised a new generation of young scientists working on such weaponry, calling them 'the heroes of our time'.

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Leading man: President Putin announced the nuclear weapons developments during his annual state of the nation address in Manezh in Moscow, Russia

The Russian leader emphasized that the development of new weapons that have no equivalent in the West came in response to the U.S. withdrawal from a Cold war-era treaty banning missile defenses and U.S. efforts to develop a missile defense system.

He said that the U.S. has ignored Russian complaints.

'No one has listened to us,' he said. 'You listen to us now.'

He said the new weapons will help ensure global stability and draw a line under attempts to weaken Russia.

He said that another weapons system, called Kinzhal, or Dagger, already has been deployed in Russia's Southern Military District.

He said it's a hypersonic missile carried by an aircraft that that flies at 10 times the speed of sound with an unpredictable trajectory towards its target.

Today's televised speech was timed to closely precede the March 18 election, in which Putin is set to easily win a fourth term.

The Russian leader's approval ratings top 80 per cent despite an economic slowdown caused by continuing tensions with the West and a drop in global oil prices.

China has announced it is building the world's fastest wind tunnel to develop a new generation of super-fast airplanes - but it could also be used for hypersonic missile technology.

The development of what it said would be 'the world's fastest hypersonic wind tunnel' was revealed by the state-run Xinhua news agency late on Monday.

Wind tunnels test how air will pass over a solid object, helping designers improve aerodynamics or reduce stress points for objects as they reach high speeds.

'The 265-meter-long tunnel can be used to test hypersonic aircraft that can travel at speeds of up to Mach 25 (30,625 kph), 25 times the speed of sound,' Han Guilai, a researcher with China's State Key Laboratory of High Temperature Gas Dynamics at the Chinese Academy of Sciences, said.

To compare, the current fastest generation of fighter jets can travel up to speeds of around 2.5 Mach.

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China has announced it is building the world's fastest wind tunnel that could be used to test hypersonic missiles. Pictured, footage of a test of Russia's new Sarmat missile

The revelation comes as the world's leading military nations embark on a race to develop the next generation of hypersonic weapons, from missiles and spy planes to railguns, that can beat conventional defence systems.

Earlier this month, Russia's president Vladimir Putin boasted his nation had developed a new generation of 'invincible' hypersonic missiles, sparking anger in the United States and other NATO countries.

In a state-of-the-nation speech in Moscow, the Russian president said the weapons include a nuclear-powered cruise missile, a nuclear-powered underwater drone and a new hypersonic missile.

He said the creation of the new weapons has rendered Nato's US-led missile defence 'useless', and means an effective end to what he described as Western efforts to curb Russia's development.

The development of what China said would be 'the world's fastest hypersonic wind tunnel' was revealed by the state-run Xinhua news agency late on Monday. Pictured, plans for a 'hypersonic heavy bomber' that were unveiled by Chinese researchers recently

He said: 'I want to tell all those who have fuelled the arms race over the last 15 years, sought to win unilateral advantages over Russia, introduced unlawful sanctions aimed to contain our country's development: all that you wanted to impede with your policies has already happened.

'You have failed to contain Russia.'

He said that the nuclear-powered cruise missile tested last autumn has an unlimited range as well as high speed and manoeuvrability, allowing it to pierce any missile defence.

He said its operational depth and high speed would make it invulnerable to enemy interception.

'No-one in the world has anything like that,' he said. 'It may appear someday, but by that time we will develop something new.'

Earlier this month, Russia's president Vladimir Putin (pictured) boasted his nation had developed a new generation of 'invincible' hypersonic missiles

Russian president said the weapons include a nuclear-powered cruise missile, a nuclear-powered underwater drone and a new hypersonic missile

The Russian leader said that another new weapon, called Avangard, is an intercontinental hypersonic missile that could fly to targets at a speed 20 times the speed of sound and strike 'like a meteorite, like a fireball'.

Putin said Russia has also tested a new heavy intercontinental ballistic missile, called Sarmat, with a range and number of warheads exceeding its Soviet-era predecessor, known in the West as Satan.

While experts are deeply sceptical about how close to operational the missiles might actually be, US officials in recent weeks have sounded growing alarm about the potential threat from hypersonic weapons - defined as weapons that can travel at five times the speed of sound or more.

Such weapons can beat regular anti-missile defences as they are designed to switch direction in flight and do not follow a predictable arc like conventional missiles, making them much harder to track and intercept.

WHAT ARE HYPERSONIC AIRCRAFT AND WHO IS DEVELOPING THEM?

Hypersonic aircraft are those capable of a hitting speeds five times the speed of sound or more.

The vehicles could be used to deliver missiles, including nuclear weapons, to targets around the world in a fraction of the time achieved by current craft.

Hypersonic vehicles travel so rapidly and unpredictably they could provide an almost-immediate threat to nations across the globe.

Once developed, the gap between identifying a military threat and launching an attack on it will drop from hours to minutes, even at long distances.

Since 2013, China has conducted seven successful test flights of its hypersonic glider DF-ZF.

The vehicle will be capable of speeds of between Mach 5 and Mach 10, or five to 10 times the speed of sound.

US officials tested tested HTV-2 in 2011, an unmanned aircraft capable of Mach 20, but the hypersonic flight lasted just a few minutes before the vehicle crashed.According to reports in the Japan-based Diplomat magazine, China has also developed - and last year tested - a new type of hypersonic missile called the DF-17.

Though the Pentagon is warning about hypersonics, the United States has itself been developing the technology for years.

The Air Force says its X-51A Waverider cruise missile, tested in 2012, could travel at speeds faster than Mach 6 (3,600 miles per hour, 5,800 kph).

The Xinhua report said the Chinese Academy of Sciences had already simulated a hypersonic plane flight in its current wind tunnel at speeds 'ranging from Mach 5 and 9'.

'The new tunnel will aid the engineering application of hypersonic technology by duplicating the environment of extreme hypersonic flights,' Han said.

'Once issues are discovered during these ground tests, they will be ironed out before test flights begin.'