Pension or BTL

HappyMJ

edinburgher wrote: »

From what I've read about the changes to BTL taxation, income tax would remain the same regardless of how large a mortgage would be carried against the property as it will be levied on rent received (which hasn't changed in our example). Profitability might reduce as the OP deleveraged, but that's not the same thing.

Only if the OP is a higher rate tax payer.

Nothing changes for non taxpayers and basic rate tax payers. The mortgage interest is still an expense deducted in full against rental income.

£270 per month doesn't indicate the OP is a higher rate taxpayer.

edinburgher

I'm not sure that sounds right. If OP has a relatively large mortgage (say £150k) and rents out their property for I don't know, £10k), they are perilously close to higher rate tax and loss of the relief. One more property would do it.

So your advice consists of staying at a basic rate of tax while growing a property empire. Seems pretty unlikely in London!

Daniel54

Mortgage capital repayments to not attract any tax relief.The £270 pension contribution is net of tax relief,so assuming a basic rate tax payer the OP would need to set aside gross pay of £ 337.50 to pay £270 off his mortgage

Capital repayments also do not come with a 25% tax free lump sum on retirement,nor with a Government underwritten inflation linked income stream for life,including a widow's pension

As others have said,there is no way paying off the capital of a BTL mortgage can compete financially with a NHS pension

smerch1468

HappyMJ wrote: »

Do you own the property that you live in?

The house you live in is free from capital gains tax. The BTL property has income tax on the rental income and capital gains tax on the eventual sale of the property.

For tax reasons you're actually better off not paying off the BTL mortgage as you get tax relief on the interest. The money that you could have used to pay the mortgage off can be redirected into other savings or investments that will earn more in interest or dividends some of which can be paid tax free.

Me personally....I'd save the cash. If saving in the pension is going to give you the best return then save there. If saving after tax income is going to allow you to borrow more on a mortgage to buy a home to live in then pull out, get the mortgage then restart the pension when you can afford to.

£270 a month in your take home pay could enable you to borrow another £50,000. That might make the difference between a 2 bedroom flat and a 3 bedroom house.

At the end of the day it's up to you.

I get worried when I see BTL vs Pension questions, especially when it's Final Salary pensions that are being scrutinised.

Let me firstly say that the NHS pension scheme is probably one of the best guaranteed pensions available in the UK. As most people know this type of pension has been killed off in the private sector. I was in a Final Salary pension scheme for 3 years in the 90s, I have just been sent a transfer value calculation of just under £50k. Considering my salary at the time was £11k, you cannot dismiss a final salary pension in any way shape or form vs a BTL investment.

Property prices are at historical highs. In London they are now well over 10 times average earnings. If ever there was a speculative bubble, it's in property. When that bubble does pop it's going to be painful.

The amount you can borrow on a BTL mortgage is also NOT related to your take home pay. Sure you need a minimum income to qualify but ultimately its the mortgage repayment to rent ratio that the lender will look at.

In summary a guaranteed pension with inflation proofing, and a spouses pension built in would personally give me much more piece of mind than a speculative property investment that could be more hassle than it's worth. Don't forget the amount of tax you will pay on rental income less expenses and the increased stamp duty for second homes.

HappyMJ

smerch1468 wrote: »

Property prices are at historical highs. In London they are now well over 10 times average earnings. If ever there was a speculative bubble, it's in property. When that bubble does pop it's going to be painful.

I personally think property is relatively cheap and not in a bubble for various reasons.

If property gets any cheaper BTL landlords will jump in and prop up the market. Returns on property are about 10%/year when leveraged with a mortgage and taking into account both rental income and capital gains you don't get returns like that in many other investments.

Kobi11

The groundswell of opinion here favours keeping a pension than a BTL, which on the surface, is a no-brainer.
The hypothesis for all this is having a career in the public sector for the rest of my life, or course tagging along the competitive pension. If this was in the 60s, I think it’s a fairly easy decision to make -Pension over BTL. These days, no jobs are guaranteed - which makes it the more trickier.

So assuming I left the NHS in a year, and joined another provider (albeit with a less competitive package – no final salary scheme). Would pension still win over BTL?

In as much as house prices fall, they never fall flat. So with CGT, income tax, higher rate tax on the BTL, it still appears a though call to make based on the scenario I painted.

kidmugsy

Kobi11 wrote: »

I am torn between contributing to a pension ... or using this proportion of income to reduce the mortgage on my rental property.

My employer (NHS) ...

As a taxpayer I urge you to abandon the pension and plunge everything into the BTL. It would be entirely to my advantage.

dunstonh

The hypothesis for all this is having a career in the public sector for the rest of my life, or course tagging along the competitive pension. If this was in the 60s, I think it’s a fairly easy decision to make -Pension over BTL. These days, no jobs are guaranteed - which makes it the more trickier.

Year is irrelevant. 4 years in the public sector or private sector is still 4 years. That four years in the public sector with the NHS pension available makes having the NHS pension the no brainer option.

So assuming I left the NHS in a year, and joined another provider (albeit with a less competitive package – no final salary scheme). Would pension still win over BTL?

Impossible to answer without knowing the facts of the new pension. if the employer offers free money then nothing beats free money.

In as much as house prices fall, they never fall flat. So with CGT, income tax, higher rate tax on the BTL, it still appears a though call to make based on the scenario I painted.

Not sure how you come to that conclusion. Its not a tough call to make at all. NHS pension £ for £ beats the buy to let hand over fist.

HappyMJ

Kobi11 wrote: »

The groundswell of opinion here favours keeping a pension than a BTL, which on the surface, is a no-brainer.
The hypothesis for all this is having a career in the public sector for the rest of my life, or course tagging along the competitive pension. If this was in the 60s, I think it’s a fairly easy decision to make -Pension over BTL. These days, no jobs are guaranteed - which makes it the more trickier.

So assuming I left the NHS in a year, and joined another provider (albeit with a less competitive package – no final salary scheme). Would pension still win over BTL?

In as much as house prices fall, they never fall flat. So with CGT, income tax, higher rate tax on the BTL, it still appears a though call to make based on the scenario I painted.

It's a risk you have to consider and take yourself. You've posted on the pension board. Most people here a pro-pension. I am not. I prefer property and cash savings despite the potentially lower returns. I don't think I would have anywhere near what I have made had I made higher pension contributions.

atush

I wouldnt count on london prices standing still, or constantly rising if we Brexit?

Really, it is a complete no brainer. The NHS pension trumps the BTL.

You should ideally be saving outside the NHS ppension in cash and S&S isas. Use this money to pay down some of the mtg when the anti- BTL measures come in or if rates eventually go up..