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  • FIRST POST
    • Fireflyaway
    • By Fireflyaway 27th Nov 17, 5:31 PM
    • 1,356Posts
    • 1,377Thanks
    Fireflyaway
    Pension v property
    • #1
    • 27th Nov 17, 5:31 PM
    Pension v property 27th Nov 17 at 5:31 PM
    I've just enrolled in LGPS. Everyone keeps telling me how good it is. I mentioned in a previous post about using calculators as a rough guide to estimating retirement income and I did that today using my new LGPS contributions and again was disappointed! Seems I would get around £550 a month even though to me the monthly contributions seem high. To be fair I am nearly 40.
    The alternative is to save £1000 a month and buy a property to rent as a retirement income. Right now I'm considering cancelling my LGPS and enjoying extra money each month and then going down the property route. What would you guys advise?
Page 2
    • kidmugsy
    • By kidmugsy 27th Nov 17, 11:38 PM
    • 9,896 Posts
    • 6,675 Thanks
    kidmugsy
    I'm also a tax payer and ....
    Originally posted by Fireflyaway
    Why do people insist on using this piffling argument?
    Free the dunston one next time too.
    • kidmugsy
    • By kidmugsy 27th Nov 17, 11:40 PM
    • 9,896 Posts
    • 6,675 Thanks
    kidmugsy
    There’s nothing magic about property.
    Originally posted by AnotherJoe
    Oh come now! Everyone knows you can't go wrong with bricks and mortar.
    Free the dunston one next time too.
    • Terron
    • By Terron 28th Nov 17, 12:00 PM
    • 114 Posts
    • 122 Thanks
    Terron
    I have pensions and property. I expect to start drawing my pensions in 18 months. I went into property to provide an income to cover the time from when I lost my job until when I start taking my pensions, using savings and an inheritance.

    I have been getting a return of over 7% net from my properties, some worse some better, One of the worse is a former home I kept in the home of getting capital growth which appears to have happened. I plan to sell that when I take my pensions to avoid the new tax and pay down mortgages on other properties. I had the advanatge of having grown up in an area with high rental returns and still having contacts there,

    Despite property working well for me I would chose the LGPS if I had a choice. I have more moeny in my pensions than in property. I do have a DB pension (1/60th per year) and a DC pension with a DB underpin (1/80th per year) on part. Together they should give me about 13k a year.

    My feeling is go for a pension first if DB or matched by your wmployer, then go for an ISA. If you still have moeny to invest then try property and see if you like it, but be wary of the risks and the hundreds of laws and regulations a landlord has to comply with.
    • lisyloo
    • By lisyloo 28th Nov 17, 12:20 PM
    • 21,319 Posts
    • 10,243 Thanks
    lisyloo
    A rental could bring in £850 a month and once paid could be sold and the proceeds banked.
    Have you factored in

    transcation costs e.g. stamp duty, estate agents fees on sale, legal fees, removals
    taxes - income tax, cgt
    upkeep
    insurance
    the work involved
    agency/legal fees
    The cost of tenants wear and tear (higher than owners) and keeping it up to a high standard
    voids (empty periods with no rent)

    On the qualitative rather than quantative side have your considered
    the work involved in all of the above
    getting called by a tenant at 4:00a/m?
    being on call for breakdowns?

    Personally I'd go for the pension
    • ManofLeisure
    • By ManofLeisure 28th Nov 17, 12:29 PM
    • 421 Posts
    • 873 Thanks
    ManofLeisure
    Property comes with a warning - Capital Gains Tax - which in my experience is often overlooked.
    • Terron
    • By Terron 28th Nov 17, 4:24 PM
    • 114 Posts
    • 122 Thanks
    Terron
    Property comes with a warning - Capital Gains Tax - which in my experience is often overlooked.
    Originally posted by ManofLeisure
    There may be no problem with that depending on what you are doing. If you are flipping properties then obviously it is important.
    If you are using properties to provide an income from the rent as a form of pension with no intention of selling you can ignore it as it goes away when you die. Apart from my former home for which PPR applies that is what I am doing.
    Then there is the method of investing for capital gains, but profiting from them not by selling but by remortgaging. That used to avoid all tax until you died, but the new Section 24 makes it more difficult.
    • woolly_wombat
    • By woolly_wombat 28th Nov 17, 4:29 PM
    • 502 Posts
    • 304 Thanks
    woolly_wombat
    I have pensions and property. I expect to start drawing my pensions in 18 months. I went into property to provide an income to cover the time from when I lost my job until when I start taking my pensions, using savings and an inheritance.

    I have been getting a return of over 7% net from my properties, some worse some better, One of the worse is a former home I kept in the home of getting capital growth which appears to have happened. I plan to sell that when I take my pensions to avoid the new tax and pay down mortgages on other properties
    Originally posted by Terron
    The good news is that you will be able to minimise the Capital Gains Tax due on the sale of your former home through:
    1. Private Residence Relief for the time you lived there
    2. Letting Relief (up to £40,000)

    Explanation and examples here:
    https://www.gov.uk/tax-sell-home/let-out-part-of-home

    There appears to be widespread awareness of Private Residence Relief but Letting Relief can also be very valuable.
    • woolly_wombat
    • By woolly_wombat 28th Nov 17, 4:40 PM
    • 502 Posts
    • 304 Thanks
    woolly_wombat
    Property comes with a warning - Capital Gains Tax - which in my experience is often overlooked.
    Originally posted by ManofLeisure
    Particularly as CGT is now charged at a higher rate on residential property than on other assets:

    https://www.gov.uk/capital-gains-tax/rates

    Fortunately there are opportunities to minimise CGT on the sale of any property that has been a principal private residence:

    https://www.taxcafe.co.uk/resources/theprincipalprivateresidenceexemption.html

    See also #27.
    • Fireflyaway
    • By Fireflyaway 28th Nov 17, 5:19 PM
    • 1,356 Posts
    • 1,377 Thanks
    Fireflyaway
    Or maybe just stick extra money in the bank? Sure it won't make much based on today's rates but there is no risk / hassle involved as there could be with a property. Saving £1500 a month would mean a sum of nearly 400k saved by age 60. That over £1000 a month if you live till 90! But then again £1000 probably won't buy much in 20 years time....
    • BucksLady
    • By BucksLady 28th Nov 17, 5:32 PM
    • 375 Posts
    • 942 Thanks
    BucksLady
    Property comes with a warning - Capital Gains Tax - which in my experience is often overlooked.
    Originally posted by ManofLeisure
    You should have found yourself a better accountant
    • TheShape
    • By TheShape 28th Nov 17, 5:38 PM
    • 1,145 Posts
    • 920 Thanks
    TheShape
    Why not consider a LISA? Approx £333 a month would fill your LISA subscription each year. Then decide what to do with the rest, possibly a S&S ISA, high interest current accounts and regular savers.
    • Terron
    • By Terron 28th Nov 17, 7:33 PM
    • 114 Posts
    • 122 Thanks
    Terron
    The good news is that you will be able to minimise the Capital Gains Tax due on the sale of your former home through:
    1. Private Residence Relief for the time you lived there
    2. Letting Relief (up to £40,000)

    Explanation and examples here:
    https://www.gov.uk/tax-sell-home/let-out-part-of-home

    There appears to be widespread awareness of Private Residence Relief but Letting Relief can also be very valuable.
    Originally posted by woolly_wombat
    If it wasn't for PPR I would not have hung on to it 18 years of living there, plus the last 18 months of ownership means I almost certainly won't pay CGT.
    • atush
    • By atush 29th Nov 17, 5:59 PM
    • 16,385 Posts
    • 10,139 Thanks
    atush
    I've just enrolled in LGPS. Everyone keeps telling me how good it is. I mentioned in a previous post about using calculators as a rough guide to estimating retirement income and I did that today using my new LGPS contributions and again was disappointed! Seems I would get around £550 a month even though to me the monthly contributions seem high. To be fair I am nearly 40.
    The alternative is to save £1000 a month and buy a property to rent as a retirement income. Right now I'm considering cancelling my LGPS and enjoying extra money each month and then going down the property route. What would you guys advise?
    Originally posted by Fireflyaway
    If you do as you suggest, you will pay more tax, and lose what your employer pays. As you get tax relief (and free money in yoru employers contributions).

    Property is tax inefficient- you dont get tax rlief on what you invest, and you pay tax on your income. Plus your expenses that are currently deductible will no longer be in future as many are being withdrawn.

    So, money into your pension gets BRTax relief, plus extra paid in by employer. Property gets no relief, is paid for from already taxed money (so is considerably less as you have volunteered to give 20 out of every 100 to HMRC) and gets no boost from employer (as you have thrown this away by opting out of the pension). Growth in the asset, and all income is taxed. It makes zero financial or mathematical sense whatsoever.
    Last edited by atush; 29-11-2017 at 6:09 PM.
    • atush
    • By atush 29th Nov 17, 6:01 PM
    • 16,385 Posts
    • 10,139 Thanks
    atush
    Fair enough. Lets forget what type of pension it is . Does anyone have an opinion on the pension v property aspect? A rental could bring in £850 a month and once paid could be sold and the proceeds banked. A pension no matter how high the employer contributions will only ever be £550 a month.
    Originally posted by Fireflyaway

    How much of that 850 will be left after costs, and taxation?
    • atush
    • By atush 29th Nov 17, 6:03 PM
    • 16,385 Posts
    • 10,139 Thanks
    atush
    Or maybe just stick extra money in the bank? Sure it won't make much based on today's rates but there is no risk / hassle involved as there could be with a property. Saving £1500 a month would mean a sum of nearly 400k saved by age 60. That over £1000 a month if you live till 90! But then again £1000 probably won't buy much in 20 years time....
    Originally posted by Fireflyaway

    Cash will suffer inflation risk and shortfall risk.

    Look them up.
    • Terron
    • By Terron 30th Nov 17, 2:56 PM
    • 114 Posts
    • 122 Thanks
    Terron
    Property is tax inefficient- you dont get tax rlief on what you invest, and you pay tax on your income. Plus your expenses that are currently deductible will no longer be in future as many are being withdrawn.
    Originally posted by atush
    Property can be tax efficient. If you make most of your money from it through capital growth you can extract that money tax free by remortgaging. CGT would in theory be due when you sold, but if you never selll it goes away when you die.

    Only finance costs are being made non-deductable and you still instead relief at the basic rate. The 10% wear and tear allowance for furnished properties has been removed, but the actual costs of repairs/replacements remain deductable.
    • Terron
    • By Terron 30th Nov 17, 3:09 PM
    • 114 Posts
    • 122 Thanks
    Terron
    How much of that 850 will be left after costs, and taxation?
    Originally posted by atush
    Tax would be pretty much th same as pension income, so can be ignored for comparision purposes.

    I have a property that now rents for £850pm. (Previously it rented for £975pm.) It is a flat so there is ground rent and service charges to pay. Add in the mortgage, and agents fees and my fixed costs come to about £750pm. Leaving about £100pm to cover unexpected repairs and hopefully provide a profit. - not good,

    On the other hand it has risen in value by about £100k in the last three years. It used to be my home so if I sell it as planned in less than 2 years time there should be no CGT.
    • gadgetmind
    • By gadgetmind 30th Nov 17, 3:25 PM
    • 10,657 Posts
    • 8,472 Thanks
    gadgetmind
    Right now I'm considering cancelling my LGPS and enjoying extra money each month and then going down the property route.
    Originally posted by Fireflyaway
    I *am* good with numbers and am pretty clued up on investing in private pensions etc. When my wife got a job with an LGPS pension, I ran the LGPS pension schenarion against her taking the money (tax free in her case as part time) and me investing it. The LGPS route was three times better than the investing one regards resulting monthly income.
    I am not a financial adviser and neither do I play one on television. I might occasionally give bad advice but at least it's free.

    Like all religions, the Faith of the Invisible Pink Unicorns is based upon both logic and faith. We have faith that they are pink; we logically know that they are invisible because we can't see them.
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