Buy a house, or put into a pension?

kyte

I will soon have £150k. Would it be better for me to invest in a house to rent out, or put it into a pension?

Some background:

- I have a job that provides a house (so don't currently own a home), but rely on tax credits to supplement my low salary. I'm concerned that under Universal Credit (rolling out soon) I could find myself disqualified if I have a house I'm not living in, if I have a change in circumstances which ends the transitional protection

- I have about £30k of pension (CETV)

- I'm in my 40's

HappyHarry

kyte wrote: »

I will soon have £150k. Would it be better for me to invest in a house to rent out, or put it into a pension?

Some background:

- I have a job that provides a house (so don't currently own a home), but rely on tax credits to supplement my low salary. I'm concerned that under Universal Credit (rolling out soon) I could find myself disqualified if I have a house I'm not living in, if I have a change in circumstances which ends the transitional protection

- I have about £30k of pension (CETV)

- I'm in my 40's

A few things worth considering:

(i) A pension is far more tax-efficient than a rental property
(ii) You can only put into a pension a maximum of your annual earnings.
(iii) Why should you not be disqualified from Universal Credits if you have £150,000?

AnotherJoe

It would take many years to put that £150k into a pension if you are a low earner.

Owning a house and being a landlord has many implications and issues, but could work well long term when your job ends as it might prevent you needing to rent for the rest of your life.

Regards being disqualified for tax credits if you own a house, I'd have thought that having £150k in savings would have the same effect??

maximumgardener

you could use some of the 150k as a deposit for a house
some of it in to pension funds
some of it in to S&S ISA funds
?

GunJack

Another thing if on benefits of any type, would any of this be classed as deprivation of capital?? I suspect it may be, and this could severely limit what you could do....just a thought...

MEM62

kyte wrote: »

I will soon have £150k. Would it be better for me to invest in a house to rent out, or put it into a pension?

Why are these the only investment types that you are considering? With that sum perhaps a visit to an IFA would be beneficial.

kyte

Under tax credits, if I buy a house, it counts as my personal private residence due to the nature of my work. So I would have my tax credits reduced for any income stream from it, but not for the capital amount (same if it is in savings, I would declare any income from interest).

This is to allow people in my position who are not allowed to live in their own home as a requirement of the job, to house ourselves if the job ends/at retirement

When Universal Credit comes in, it looks like this means I wouldn't qualify, but someone with an equally larger or larger pension pot would qualify. Although I would qualify for transitional protection, so would get UC unless my circumstances changed.

I'm not trying to deprive myself of income, either buying a house, or buying into a pension is about providing for my retirement, and trying not to be a drain on the system at that point.

My Ex is receiving a larger share, but his is all in his pension, and he receives JSA etc.

About pensions (I have no idea how this works)....

....Does this apply for private/stakeholder pensions? And what if I'm not bothered by tax relief, does this mean I'd get charged tax on the £150k (or some other charge?), or is it just not possible to pay the £150k in, like that?

atush

I agree with post 4. Pension and house are not your only choices.

With no home of your own, it would be a good idea to buy one and let it until you need to move in- you need someplace to live. You would not be subject to he greater stamp duty associated with BTL as this would be your first/only home. But you would be subject to greater taxation in future as mtg relief is withdrawn.

What other savings/investments do you have? What type of pension do you have, and your annual payments in (incl your employer)?

I would consider, as well as looking at a hone for yourself int he future, you look at a cash savings amount of 3-6 months outgoings, plus using your annual S&S isa allowance.

If you dont buy a home for your future, I would be investing that money into S&S isas each year as well as boosting your pension. As you will need a place to live in future. Cash savings wont keep up with inflation or property prices.

kyte

I have no savings or investments. My work pension is defined benefit.

For tax purposes, I don't need to worry about CGT due to the principal private residence status.

I'm starting to realise my Ex has been quite canny in keeping his pension because it doesn't affect his ability to claim benefits in the future under UC. Whereas I'm on a low income supporting the children, and may find ourselves with no UC and not really making an income from letting a house, with a very small pension to see me into retirement. So may end up having to live off the £150k while the children are small, and being much worse off long term than he is....

kyte

GunJack wrote: »

Another thing if on benefits of any type, would any of this be classed as deprivation of capital?? I suspect it may be, and this could severely limit what you could do....just a thought...

Buying a house is fine. I think paying into a pension is fine. I'm trying to make sure I do this right

zagfles

HappyHarry wrote: »

A few things worth considering:

(i) A pension is far more tax-efficient than a rental property
(ii) You can only put into a pension a maximum of your annual earnings.

This is not quite true. You can put as much as you like into a pension, the limit is on tax relief. See https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm041000

Normally of course it would be a bad idea to put money into a pension that doesn't qualify for tax relief, as most of it will be taxable on the way out. But you can do it, provided you make sure the pension provider knows and can cope with contributions that don't attract tax relief.

Also AIUI any amount you put in which doesn't qualify for tax relief doesn't count towards the annual allowance.

(iii) Why should you not be disqualified from Universal Credits if you have £150,000?

Well you aren't disqualified for tax credits...