pension vs property dilemma

n12maser

Thanks Dunstonh, appreciate the advice.

If I sold the BTL property now, based on the .gov.uk calculator, my CGT bill right now would only be £5k as I lived in the property for 7 out of the 10 years I have owned it. After other fees and settling the BTL mortgage, I'd be left with aprox £303k cash. My understanding is I could put about £190k of that into my pension straight away (3 previous years allowance @ £50k, this year's allowance @ £40k) then the rest over the next 3 years. It would all be wrapped in the pension by 2020.

Think it really comes down to how much of a risk do I want to take with regards expectations of London house-price growth over the next 30 years - my understanding is you think it's way too risky, and I think I agree. Looks like the pension route over this period of time is far lower risk + the added benefits you highlighted regarding child benefit & 40% threshold

dunstonh

My understanding is I could put about £190k of that into my pension straight away (3 previous years allowance @ £50k, this year's allowance @ £40k) then the rest over the next 3 years. It would all be wrapped in the pension by 2020.

I may be more inclined to hold some more back to feed the pension over a longer period to get maximum 40% relief (and maintain child benefit beyond 2020). ISA the rest in the meantime each year and then feed the pension from the ISA when there is no unwrapped money left. (ISAs, pensions and unwrapped sharing the same investments at the same cost with only tax differences means you can plan over a longer period and no need to rush it).

Think it really comes down to how much of a risk do I want to take with regards expectations of London house-price growth over the next 30 years - my understanding is you think it's way too risky, and I think I agree. Looks like the pension route over this period of time is far lower risk + the added benefits you highlighted regarding child benefit & 40% threshold

London is priced on the international stage. The falls in sterling in the global recession and post referendum have pushed values up in London. When sterling shows signs of reversing, this will put London property prices at risk of falling. However, there is still a supply and demand issue in London. You also have the impact of brexit when we do actually leave. Will supply and demand weaken. Lots of unknowns and pressures in both directions.

Everything has unknowns. So, start with the knowns and that will be tax. Assume the same growth rate on pension and property. Just look at how the tax will differ and see which is best purely from a tax point of view and how much the difference in tax will be.

chucknorris

n12maser wrote: »

Thanks ChuckN, super helpful perspective.

When you calculated the equity left after CHAT and fees, do you mean if selling now or do you mean a prediction for selling in run up to retirement based on predicted house price growth? Think u mean the first of these but just want to clarify...

I did meant now, but both are virtually the same for me anyway (as I'm 59, and I have recently dropped down to working only one day a week).

greenglide

I'd be left with aprox £303k cash. My understanding is I could put about £190k of that into my pension straight away (3 previous years allowance @ £50k, this year's allowance @ £40k)

So you have (or will have) £190,000 of earned income in this tax year to enable this pension payment? If you haven't then you cannot do this.

n12maser

The statement is based on this guidance from the pension advisory service, regarding "carry forward" rules:

"To use carry forward, you must make the maximum allowable contribution in the current tax year (£40,000 in 2017-18) and can then use unused annual allowances from the three previous tax years, starting with the tax year three years ago. You can’t receive tax relief on contributions in excess of your earnings in a tax year and you only receive higher rate tax relief to the extent that you have paid it."

So couldn't I do this, considering my earnings were mostly over £50k for the last 3 years and I hardly contributed anything to my pension in that time?

atush

n12maser wrote: »

Hi atush, thanks for your recommendation.

I suppose the barrier to this is there's no way we currently have an extra £1600 a month to put into my pension, what with aprox £800 per month on childcare costs (albeit going down next year), £430 mortgage, £120 council tax, food, car-related running costs etc.

Maybe that means I need to lower my retirement income expectations in order to get a suitable balance between 'living in the moment' and enjoying our life right now vs also planning sensibly for retirement?

No, you dont quite get me here. The figures I gave were for when you earn 65K (right now you cant afford that level of pension as you earn only 50K).

For now you should try and put in 10K pa into your pension.

atush

n12maser wrote: »

Thanks for your advice. One question - is my situation not two markets currently - investment property + shares? Realise that's still not particularly diversified.

Investment property and shares is 2 asset classes.

But investing only in t he usa is a poor choice. Try instead a fund with global exposure

atush

n12maser wrote: »

No but thanks for raising we have wills on our radar to do it in the next few months. Am aware of I got hit by lightening nothing would go to my partner at present

Marry her. In the mean time write a will and get it witnessed, like now.

And put her as your beneficiary in your expressions of wishes form for your current pension

Being married will cut the CGT on the sale of your property when you do it- as you can transfer half the ownership to her before you sell.

atush

n12maser wrote: »

Need to call you out on this as it's simply not true. A Royal London survey in 2015 revealed the average pension savings of a 35 year old in the UK to be £14k. Source - The Guardian (can't yet post link as a new user)

Well done for you and your wife saving some huge sums but that is certainly not the norm. My generation is heading for a pensions crisis - I work in a reasonably well paid industry (advertising) in London and the majority of my colleagues of a similar age have no property and I imagine little if anything left to contribute to a pension each month after rent + living costs. None of them live particularly beyond their means as far as I can see. House prices out of reach, wages stagnating, food & service prices inflating etc etc

That study is sucked down by all those who have 0 in a pension.

At your age you should have at least 35K in a pension. Which is easy enough to do at your salary.

atush

n12maser wrote: »

No comfort in the Royal London figure, I understand I'm way short. But people coming to this thread in a similar situation shouldn't be misled with inaccuracies.

Now that you've rephrased what you said before it's a fair point!

Id say your link to RL was an innacuracy, if you misunderstand it?