Keep a flat or buy annuity?

Mrs_pbradley936

My husband and I own a flat (we inherited it) and have been letting it out. It brings in £680 per month clear (the agent takes a percentage).

I would like to know if there are any advantages to keeping it verses selling it and buying an annuity. Are rents and annuity income treated the same way for tax purposes? We would have to pay Capital Gains Tax if we sold it and the added advantage would be that if we have the flat it passes on to our family but an annuity can only go to a surviving spouse (I think).

HappyMJ

If it were me I'd keep the flat.

robin61

What other retirement income have you got ? How heavily will you be relying on the rental income ?

HappyHarry

Mrs_pbradley936 wrote: »

My husband and I own a flat (we inherited it) and have been letting it out. It brings in £680 per month clear (the agent takes a percentage).

I would like to know if there are any advantages to keeping it verses selling it and buying an annuity. Are rents and annuity income treated the same way for tax purposes? We would have to pay Capital Gains Tax if we sold it and the added advantage would be that if we have the flat it passes on to our family but an annuity can only go to a surviving spouse (I think).

Have you considered any other strategy apart from keeping the flat or purchasing an annuity? There are many investment options that may be appropriate.

Taxation is a consideration when deciding which path to take, but there are probably more important considerations such as your age, health, enthusiasm for running the flat, dependency on the rental income, how could you cope during void periods, are you prepared to sacrifice your capital for an income for life to name but a few.

To answer your questions;
- No, taxation on a purchased life annuity is different. Some of the annuity is taxed as income, some is not taxed as it is considered return of capital. The older you are when you purchase an annuity, the less taxation there is upon the income.
- You can now purchase annuities that have long guarantee periods. In this event, the annuities can pass on to non-dependants in the event of your death before the end of the guarantee period.

Is it worth keeping or selling the flat? There is not enough information here to go on. I would suggest that you talk through the options with an IFA (and even get some quotes for Purchased Life Annuities) before committing to a decision.

Good luck on whichever path you choose.:)

AnotherJoe

Impossible to know without numbers (value of property, what the CGT would be and so on) and facts like your ages and health.

dunstonh

They are two options for income. What about the rest? Why are you not considering other income options?

Mrs_pbradley936

dunstonh wrote: »

They are two options for income. What about the rest? Why are you not considering other income options?

I don't really know about any others. We both have decent occupational pensions plus my husband has a retainer for being a consultant for a business he sold when he retired. He pays high rate tax but I do not.

What really set us off about selling the flat was that we discovered that if we decided to downsize from where we are to a smaller place we would have to pay additional stamp duty because we own more than one property.

AnotherJoe

Mrs_pbradley936 wrote: »

What really set us off about selling the flat was that we discovered that if we decided to downsize from where we are to a smaller place we would have to pay additional stamp duty because we own more than one property.

That's not correct, if you own and sell your main residence and buy another, you don't.

Mrs_pbradley936

AnotherJoe wrote: »

That's not correct, if you own and sell your main residence and buy another, you don't.

Really? I didn't know that. I thought if you owned more than one property then you had to pay the extra.

Thrugelmir

How long does the lease have to run on the flat?

AnotherJoe

Mrs_pbradley936 wrote: »

Really? I didn't know that. I thought if you owned more than one property then you had to pay the extra.

Nope, without going into exceptions, the simple case is, you might be a landlord with multiple BTLs plus your own house you live in , and as long as you sell that house and buy another to live in (eg you "move house" in common language), you just pay standard SDLT and not the extra 3%.

So, if you're considering selling your BTL purely because at some time you will move house, then you need to reevaluate. And also I'd suggest boning up on tax treatment of rental income amd landlords obligations given this is a very basic tax rule.