Annuity advice needed

Mrs_pbradley936

I have a flat which I let and it brings in £650 per month but I have calculated an annual income of £6500 because of agent fees, repairs and voids. The flat is probably worth £150K and I just did a search and discovered that £150k invested via an annuity would bring me in just over £11K which is twice as much. If I wanted to sell the flat and buy an annuity would I have to pay Capital Gains Tax? Other than not being able to leave £150K to my children are there any other downsides?

EdInvestor

Have you looked at "purchased life annuities" or pension annuities?You could get the former with your capital and it would benefit from much better tax treatment.

How long do you expect to live?If not very long, then annuities are generally not a good buy, unless you can get an "impaired life" one.

Another downside with a level annuity is that its purchasing power will be eaten away by inflation.

You might have to pay CGT if you sell the property - but there are a lot of reliefs - apart from letting relief, the annual CGT allowance ( X2 if you are married and give your husband half the property before selling) and taper relief.There's also relief if you've ever lived in the property.

If you sold the property and invested the capital in a low-medium risk invesment portfolio, you would be able to get 7500 in income without touching the capital, and with the use of ISAs, that income could be tax free (unlike the rental income). There might also be capital gains which you could realise as a topup (tax free) now and then. A good investment strategy would see the likelihood of a rising income and rising capital long term - and of course you can pass the capital on.

Horses for courses really. Many people are hippy with a mix of different products - some guaranteed annuity type income, some shares and property funds, some cash.

DavidLaGuardia

An annuity pays part income and part capital (like a loan being paid back to you) so you should not compare the annuity rate directly with the income from another investment.
Edinvestor points out that a puchase life annuity is taxed less than an annuity from pension funds. This is because pat of the annuity payment from the former is simply a return of capital.
Guaranteed Annuity rates are based on the income from gilts. The value ultimately depends on how long you live. Those who die early are subsidising those who live beyond the average life expectancy.

EdInvestor

DavidLaGuardia wrote: »

Those who die earlyy are subsidising those who live beyond the avrage life expectancy.

With PLAs however, it is assumed by the lifecos that this subsidy will barely apply as people who don't think they will live very long don't usually buy annuities voluntarily - pension annuities are effectively compulsory, of course.

Thus you can find that a PLA pays out a lower income than a CPA, but that the net amount you get will be higher with the PLA due to the tax treatment.

There are now some new products on the market that are a kind of halway house offering a guaranteed icnome for a period, and a guaranteed return of capital at the end.These may suit you, but you should bargain very hard with the advisor for best terms and the charges on the products can be very steep.Guarantees are not cheap these days.

http://www.fiveforlife.co.uk/index.htm?WT.srch=1