Pension v property

Terron

woolly_wombat wrote: »

The good news is that you will be able to minimise the Capital Gains Tax due on the sale of your former home through:

1. Private Residence Relief for the time you lived there
2. Letting Relief (up to £40,000)

Explanation and examples here:
https://www.gov.uk/tax-sell-home/let-out-part-of-home

There appears to be widespread awareness of Private Residence Relief but Letting Relief can also be very valuable.

If it wasn't for PPR I would not have hung on to it 18 years of living there, plus the last 18 months of ownership means I almost certainly won't pay CGT.

atush

Fireflyaway wrote: »

I've just enrolled in LGPS. Everyone keeps telling me how good it is. I mentioned in a previous post about using calculators as a rough guide to estimating retirement income and I did that today using my new LGPS contributions and again was disappointed! Seems I would get around £550 a month even though to me the monthly contributions seem high. To be fair I am nearly 40.
The alternative is to save £1000 a month and buy a property to rent as a retirement income. Right now I'm considering cancelling my LGPS and enjoying extra money each month and then going down the property route. What would you guys advise?

If you do as you suggest, you will pay more tax, and lose what your employer pays. As you get tax relief (and free money in yoru employers contributions).

Property is tax inefficient- you dont get tax rlief on what you invest, and you pay tax on your income. Plus your expenses that are currently deductible will no longer be in future as many are being withdrawn.

So, money into your pension gets BRTax relief, plus extra paid in by employer. Property gets no relief, is paid for from already taxed money (so is considerably less as you have volunteered to give 20 out of every 100 to HMRC) and gets no boost from employer (as you have thrown this away by opting out of the pension). Growth in the asset, and all income is taxed. It makes zero financial or mathematical sense whatsoever.

atush

Fireflyaway wrote: »

Fair enough. Lets forget what type of pension it is . Does anyone have an opinion on the pension v property aspect? A rental could bring in £850 a month and once paid could be sold and the proceeds banked. A pension no matter how high the employer contributions will only ever be £550 a month.

How much of that 850 will be left after costs, and taxation?

atush

Fireflyaway wrote: »

Or maybe just stick extra money in the bank? Sure it won't make much based on today's rates but there is no risk / hassle involved as there could be with a property. Saving £1500 a month would mean a sum of nearly 400k saved by age 60. That over £1000 a month if you live till 90! But then again £1000 probably won't buy much in 20 years time....

Cash will suffer inflation risk and shortfall risk.

Look them up.

Terron

atush wrote: »

Property is tax inefficient- you dont get tax rlief on what you invest, and you pay tax on your income. Plus your expenses that are currently deductible will no longer be in future as many are being withdrawn.

Property can be tax efficient. If you make most of your money from it through capital growth you can extract that money tax free by remortgaging. CGT would in theory be due when you sold, but if you never selll it goes away when you die.

Only finance costs are being made non-deductable and you still instead relief at the basic rate. The 10% wear and tear allowance for furnished properties has been removed, but the actual costs of repairs/replacements remain deductable.

Terron

atush wrote: »

How much of that 850 will be left after costs, and taxation?

Tax would be pretty much th same as pension income, so can be ignored for comparision purposes.

I have a property that now rents for £850pm. (Previously it rented for £975pm.) It is a flat so there is ground rent and service charges to pay. Add in the mortgage, and agents fees and my fixed costs come to about £750pm. Leaving about £100pm to cover unexpected repairs and hopefully provide a profit. - not good,

On the other hand it has risen in value by about £100k in the last three years. It used to be my home so if I sell it as planned in less than 2 years time there should be no CGT.

gadgetmind

Fireflyaway wrote: »

Right now I'm considering cancelling my LGPS and enjoying extra money each month and then going down the property route.

I *am* good with numbers and am pretty clued up on investing in private pensions etc. When my wife got a job with an LGPS pension, I ran the LGPS pension schenarion against her taking the money (tax free in her case as part time) and me investing it. The LGPS route was three times better than the investing one regards resulting monthly income.