Increase B2L mortgage and put funds into pension?

shinyuk

All

Am I thinking straight or have I missed something?

Situation

108K mortgage on a Buy2Let worth 175K
725 monthly rental

I am nearly 47 so if I free up say 30K and put into pension.
Tax relief is 40% as a higher rate taxpayer.

I could put 36.6K into pension fund (plus 18%)
grow over 3 years, say 5% compound.

Take 25% tax free at 50. Then income drawdown or just leave it to grow until
i stop earning.

Is there a downside?

EdInvestor

It's regarded as risky to borrow to invest, partoicualry if you think you'll get 5% that's probably lower than your moertgage interest rate.Especially risky if you then put the borrowed money into a pension so you can't then get it out.

There's no point in doing this anyway as you can get all the tax relief in one hit later just before you retire.There is no benefit in having the tax relief earlier.

shinyuk

Ed

Not sure I get your point about not worth having the tax relief now since you get it at the start of the pension? Surely not on any money that's sitting in the B2L?

dunstonh

If doesnt matter if you get it at the start or at the end.

If you invest £10,000 now and it doubles, you will have £20,000.
If you invest £7,800 now and it doubles, you will have £15,600.

include 22% tax relief onto the end value of £15,600 and you get £20,000.
include 22% tax relief onto the initial value of £7,800 and you get £10,000

So, it doesnt matter when you move the money into a pension unless
1) you die (pension funds are outside of the estate of IHT purposes)
2) you cease being a higher rate taxpayer (losing you that 40% relief and giving you 22% instead)
3) your contribution only benefits partially from higher rate tax and needs to be spread over the years.