Buying Residential Property after A Day

Big_Butts

Hi

Can anyone answer a question for me ?

I've got £100K in a company private pension.

My house is valued at around £60K with an outstanding mortgage of £43K

If my pension allows, and am thinking of buying my own house and paying a monthly rent into my pension.

What price would I have to pay for my house ?

Would I have to take £60K out of my pension (= Estimated current value), and if so would I get the £17k (= Estimated current value - Outstanding Balance) seeing as I currently own the house

And also, What about Tax Relief ??

Reason I'm asking is I've heard different things and wish to clarify.

Pal

At the moment to buy a residential property you:

- Buy it with income on which you have paid tax.
- Any capital gains are tax free;
- You can live in it forever (subject to any mortgage), or can sell it for a tax free cash sum which you can spend how you like, including getting a fairly tax efficient annuity if you want to guarantee yourself a lifetime income.

Within a SIPP:

- You buy it with income on which you have received tax relief, but you need to pay a market rent which you pay out of post tax income, so it is the same as direct ownership;
- Any capital gains are tax free (as for direct ownership);
- When you reach age 75 you HAVE to sell your house: You get to keep 25% of the money as a tax free lump sum and have to use the rest to buy a taxed an annuity.

As a result, you end up paying more tax and being forced to move house when you have retired. And this ignores the inheritance problems, and the fact that you are investing for your retirement in a single asset which might prove difficult, expensive and/or time consuming to sell.

If you really want to own a property in your pension you might want to investigate BTL but do your research first. The media has hugely overhyped this issue.

dunstonh

If my pension allows, and am thinking of buying my own house and paying a monthly rent into my pension.

You really do need to research this. It is also not as simple as paying a rent into the pension. Also, if you die, the property is sold and the pension liquidated. It has to be sold at market value. What if your wife cannot afford to buy the property? She would have to get a bridging loan to buy the property. What if she cannot get a bridging loan?

The rules are not fully in place yet and some of those things may be streamlined or made more awkward. However, its not as simple as the press makes out.