We are seeing increasing mention of the return of the pension mortgage as a repayment vehicle for interest only mortgages.

For those too young to remember, the idea was that part, or your entire mortgage is repaid by the tax relief. On the face of it, it sounds like quite an attractive proposition, but the big problem is that you would need to have a fund equal to four times the debt in order to fund the repayment by way of tax free cash, making it a very expensive option.

In today's market, it is unlikely that you would be able to use this method for main residences because interest only mortgages are few and far between.

However, most buy to let mortgages offer interest only options which means that the owners still need to consider a vehicle to repay the outstanding capital at the end of the term.

As mentioned in our Summer newsletter, the rules surrounding pensions have greatly relaxed meaning that at age 55, investors can access their funds without the need to purchase an annuity - up to 100% of the fund. There are tax implications of doing this but in theory those with outstanding mortgage balances could use their pension to repay the debt.

Naturally, as financial advisers, we love pensions. There aren't many investments that provide immediate tax relief of 20% at source and then virtually tax free growth (for individual contributions up to limits). Of course, we also appreciate that buy to let property can form a large part of many of our clients' investment portfolios.

Perhaps by combining these two types of investment, you can have 'the best of both worlds', making your buy to let investment as tax efficient as possible.

So how would it work:

Old way, very simply, a £100,000 mortgage would need a fund of £400,000. Over a period of 25 years, you would need to make a gross pension contribution of over £500 per month (£400 for a basic rate tax payer and £300 for a higher rate taxpayer). That's a total investment of £150,000 gross over 25 years giving a net cost of £120,000 for basic rate or £90,000 for a higher rate tax payer. Assuming inflation remains low, annuity rates remain constant and your investment achieves 7% growth per year after costs, this contribution could, in theory, achieve in excess of the £400,000 fund required at retirement. Of course, pensionable earnings need to be adequate in order to support these pension contributions. Rental income does not qualify.

Under the new proposals, withdrawing £100,000 may only require a fund of £128,000 (based on the existing tax system and no other income). But with pensions this is not the actual cost due to the tax relief. Making the same assumptions as above, a gross contribution of just over £160 per month would be required which equates to £128 for a basic rate taxpayer and £90 for a higher rate tax payer. This gives a total gross cost of £48,000 which is £38,400 for a basic rate tax payer net and £28,800 for a higher rate tax payer.

In our example, £32,000 can be taken as tax free cash, £10,000 (in the personal allowance) taxed at 0%, £31,865 at 20% with the remaining £25,492 at 40% giving a total net payment of £99,973 and tax of £28,027.

This is much more achievable for an investor and is even more favourable should you pay higher rate or additional rate tax whilst accumulating and then basic rate tax when you are de-cumulating.

Caution should be taken though. It may be ideal for those wishing to grow their property portfolio in a tax efficient way, but for the average investor, it could lead to a greatly reduced pension fund leading to an inadequate income in retirement.

As ever, it is vital to get proper independent advice tailored to you and your circumstances. Also be aware that legislation can change and so it is just as vital to ensure your plans are on track with regular reviews.