Pension or Property? Which one is best Now?

Cluedo1

I am 46 years old and have a lump sum of £ 70 000 to invest.

I have an existing mortgage (2,89% 10yr fixed rate), owing £ 180 000 on a property in London , am self employed, turnover +/- £ 75 000-£ 100 000 p/a. I don't have a pension.


Would it be better to buy a second property in London (using £ 70 000 as a deposit) or invest in a stocks and shares ISA + a pension fund, retiring at 67?

If I go for the pension + ISA option, should I wait until after the EU Referendum or can I invest now?

dunstonh

Would it be better to buy a second property in London (using £ 70 000 as a deposit) or invest in a stocks and shares ISA + a pension fund, retiring at 67?

Who knows which will be best. However, we can look at things we do know.

1 - Property is not tax efficient (income tax on the income. income tax on the rental income and reduced ability to offset borrowing costs against it. And capital gains tax on disposal.
2 - The Govt has an aim to reduce the ratio of landlords to owners. It has been doing this through increased taxation on landlords.
3 - Property had 30 years of credit boom pushing prices up. Now it doesn't have that. However, it does have a shortage pushing pricing up. Future unknown there.
4 - London in a price bubble? London is priced on the global market. Property didnt fall much in the credit crunch as sterling devalued by around 25%. This made property attractive to foreign investors. London especially. It has become a bit of a bubble and most bubbles burst at some point.
5 - Ability to be a landlord. Pre credit crunch, a blind monkey picking property at random could make money. It is not so easy now. You need knowledge of the market and being able to build/decorate etc yourself or on the cheap is key.

or invest in a stocks and shares ISA + a pension fund, retiring at 67?

you have no pension a goal that is 20 years away. It is going to take some serious investing.

If I go for the pension + ISA option, should I wait until after the EU Referendum or can I invest now?

Referendum is a short term issue. The pricing of global assets changes daily. Short term issues can cause swings in either directions but these would be things that happen on the global stage. The referendum is not the only thing happening this year. If you are paying in monthly, then it doesnt make the slightly difference when you start.

Cluedo1

Many thanks for the reply, dunstonh. Very useful and much appreciated.

atush

In your case, i'd pay off any existing non mtg debt, put aside a cash emergency fund (unless you have one) and then look into pensions.

They are more tax efficient than property plus you already own a home in london, buying another would be all your eggs in one basket. I a pension, you could spread your money into different areas/assets so would be diversified.

Are you a sole trader or a limited company?

kidmugsy

Are you currently paying higher rate income tax? if so the pension is very appealing. You'd put the money in across several years, each year reducing your taxable income to equal the Personal Allowance (currently £43k p.a.).

The system is not too complicated. For each £80 you send to the pension provider - your "net" contribution - it claims £20 tax relief from HMRC and adds it to your "pot". You report to HMRC that you have contributed £100 gross to a pension and hmrc refunds you £20. So your pot of £100 has cost you only £80 - £20 = £60.

You'll have access to your pot at age 55, though it's the government's intention to slide the age up to 56 and then 57.

lisyloo

Does your employer offer salary sacrifice with the pension.
Mine does and even at basic rate I get
20% tax relief plus 12% NI relief plus 13.8% employers NI relief
= 45.8%
This is well worth having.
Your employer might also contribute.


Your second property will be subject to an extra 3% stamp duty and CGT when you sell because you are only allowed one home. You could reduce the CGT e.g. sell one and then make the other one your home.


As dunstonh says you are going to have to invest a lot with 21 years to go.
Most people retiring at 67 would have started 45 years beforehand.
Not trying to be nasty just pointing out that you have a lot to make up.