Keep a flat or buy annuity?

chucknorris

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.

I was having my house valued last week and the estate agent (who was very senior) actually didn't know this either. At first she didn't take my word for it, and even tried to convince me that I was wrong! I was very surprised that she didn't already know that.

Mrs_pbradley936

Thrugelmir wrote: »

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

About 900 years - certainly long enough to get a mortgage on.

chucknorris

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).

The annuity only goes to the surviving spouse at a cost, i.e. if you opt for that option the annuity costs more/returns a lower yield. I'm thinking of selling some property, but I am most likely to invest it in shares, where the tax treatment is much better than annuity income:

1. First £5,000 dividend income is tax free (although I already use that up fully).

2. After the first £5,000 of dividend income it is taxed at only 7.5% (instead of 20%) and 32.5% (instead of 40%) and 37.5% (instead of 45%, unfortunately I won't reach that marginal tax).

3. It is also much easier to avoid capital gains tax with shares.

But there isn't anything wrong with keeping the property either, I would much rather do that than buy an annuity (but that is very subjective).

atush

Is the property in one name or two? If 1, put both your names on it as you will then get 2x CGT allowances.

Then, when you come to sell, the CGT is based on the difference between when you inherited it, and when you sell it- not what it cost to buy.

bigadaj

chucknorris wrote: »

I was having my house valued last week and the estate agent (who was very senior) actually didn't know this either. At first she didn't take my word for it, and even tried to convince me that I was wrong! I was very surprised that she didn't already know that.

By senior I suppose you just mean old.

Estate agents don't need any qualifications after all, and many are quite poor (in the quality rather than financial sense).

chucknorris

bigadaj wrote: »

By senior I suppose you just mean old.

Estate agents don't need any qualifications after all, and many are quite poor (in the quality rather than financial sense).

I meant exactly what I said, that she was senior, i.e. she is the branch manager and a partner on the business (she is not old). I know estate agents don't need qualifications, I didn't say that they did.

westv

Or you could keep the flat and downsize to it later.

relaxtwotribes

chucknorris wrote: »

2. After the first £5,000 of dividend income it is taxed at only 7.5% (instead of 20%) and 32.5% (instead of 40%) and 37.5% (instead of 45%, unfortunately I won't reach that marginal tax).

I am not sure this is correct. I believe the correct situation is:
Basic rate taxpayers will pay 7.5% instead of 0%.
Higher rate taxpayers will pay 32.5% instead of an effective 25%.
Additional taxpayers will,pay 38.1% instead of an effective 30.55%.

BWTFDIK. Someone else can confirm or otherwise.

chucknorris

relaxtwotribes wrote: »

I am not sure this is correct. I believe the correct situation is:
Basic rate taxpayers will pay 7.5% instead of 0%.
Higher rate taxpayers will pay 32.5% instead of an effective 25%.
Additional taxpayers will,pay 38.1% instead of an effective 30.55%.

BWTFDIK. Someone else can confirm or otherwise.

You are incorrect, you have not read my post properly, because I am comparing the way that dividend income is taxed compared to annuity income (in line with the OP's question), I am not comparing it to the way that dividend income was taxed before the recent tax changes (as you have).

chucknorris wrote: »

I am most likely to invest it in shares, where the tax treatment is much better than annuity income:

relaxtwotribes

Yes, thank you for correcting me. But wouldn't a true comparison include the corporation tax paid before any dividend can be declared?