British Pension Reforms Could Boost Spanish Real Estate Market

Raymundo LarraĆ­n Nesbitt, April, 8. 2014

The British Chancellor George Osborne has announced sweeping changes giving British pensioners more freedom to spend their pension pots how they like, including on Spanish property. In this article, regular contributor Raymundo Larraín Nesbitt looks at the impact the new rules might have on the Spanish real estate market.

Photo credit: Andrew Winning / REUTERS

By Raymundo Larraín Nesbitt
Lawyer – Abogado
8th of April 2014


Chancellor of the Exchequer George Osborne has outlined in March the blueprint of what hands down is the most dashing pension reform in almost a century. His proposed changes for 2014 Budget mean that hundreds of thousands of people retiring each year will now have the freedom to take savings built up in a defined contribution pension as a cash lump sum, subject to their marginal rate of tax, instead of turning their savings into a guaranteed lifetime income in the form of an annuity. Osborne has effectively handed savers the control over their savings and pensions.

This unprecedented liberty, devised to woo the grey vote with next year’s general election in mind, has undone the financial shackles bogging down millions of pensioners that were forced to invest in annuities with meagre returns due to the ultra-low interest rates of the previous five years. In fact, the lowest on record over a fifteen-year period. This radical shakeup will allow anyone over the age of 55 who belongs to a private pension scheme (as opposed to a final-salary scheme) to take out their savings as a lump sum to spend or invest as they wish.

As from April 2015 savers will be able to access the entirety of their pension pot at any time after age 55, subject to income tax at marginal rates on three-quarters of the money. The ability to take the whole pension as one lump of income would mean someone with a £100,000 pension could take £25,000 tax-free and then withdraw the remaining £75,000 to spend or invest as they saw fit. However the £75,000 would be treated as income for that tax year, pushing the individual into the higher-rate tax band for the year. From April 2015, there will be no cap on the amount of money that savers can withdraw from this arrangement, so income can be varied to stay within the basic rate tax or even nil-rate threshold for the year if desired.

This daring reform allows pensioners unprecedented access to investment opportunities that fan out before them as well as poising a new set of challenges and risks. Where to invest responsibly their hard-earned money? I wonder. I think we can safely rule out Lamborghinis for now.

In my opinion there is nowhere safer than a crashed property market in a first-world country, such as Spain. The inherent risk of buying property has largely been factored out as property prices could barely fall any lower after seven years of continued drops. Moreover, Spain has now technically exited its gloomy seven-year recession marking the inflexion point which turns the tide and heralds a new cycle. The market is clearly picking up pace spurred by savvy foreign asset-hunters bagging themselves bargains under the sun.


Spanish House Prices Down Fifty Per Cent


In the wake of Spain’s real estate bubble implosion property prices have fallen 50 per cent across the board. It is widely acknowledged by reputed experts that the time to invest in Spanish real estate is ripe once again. Following up on Spain’s upbeat macro figures, high-profile investors, such as George Soros, Bill Gates or Wang Jianlin (China’s richest man), are heading the wolf pack swooping in the pick of the litter. A new dawn begins for the Spanish property industry offering unique once-in-a-cycle investment opportunities in a bottomed out market. Clearly a buyer’s market.

Chancellor Osborne’s landmark pensions reform has left the door ajar for shrewd pensioners wishing to escape the lethargic constraints of dull paltry annuity returns and profit instead from the bright opportunities offered by a dynamic crashed property market (either directly or indirectly through investment funds); much like high-flyers are busy doing already. The time has come for those savers wishing to be in the driver’s seat of their financial future and, through direct control, make a difference with double-digit returns (long-term). The chancellor’s bold reform levels the playing field and empowers pensioners to be on par with big-ticket investors at just the right investment moment to supplement meagre state pensions.

Carpe diem” – Horace (seize the opportunity). Odes, book 1, number 11.

Leading Roman lyric poet during the time of Augustus (Octavian).

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I am indebted to the following sources:

  • The Telegraph: Budget 2014: How will the new pensions system work? By Dan Hyde. 20/03/14
  • Financial Times. By Josephine Cumbo, George Parker, Chris Giles, Sam Fleming and Jim Pickard. 20/03/14
  • The Sunday Times business supplement. 23/03/2014.


Raymundo Larraín Nesbitt is a property-specialist lawyer based in the UK qualified to practise in Spain

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