Pension versus Buy To Let

TrevorHampton

My business partner and I run a small company and want to either start a business pension or purchase a property to let out via the company. Which would be best as a long term investment?

Drp8713

Well, the pension is a business expense, so you would reduce your corperation tax, the money will then grow free from capital gains tax and income tax within the pension, you can use low cost funds to keep fees under 0.5% and its no hassle. Plus shares have beaten property returns over the long term.

Property would mean tax on income, tax on capital gain, fees for solicitors, stamp duty, insurance, could have periods with no tenants, repairs, late night call outs.

I know which I would go for.

lisyloo

Apart from the tax breaks (which make it a no brainer), in general the consensus is that BTL no longer stacks up at today’s prices in most areas of the country.
There are of course exceptions in terms of area and people who have excellent DIY skills.

capital0ne

BTL = Hassle, Headches, heartaches, no guaranteed income, guaranteed outgoings, no tax incentives
Pension = tax free money, growth, guaranteed income in retirement

AnotherJoe

Added to what's been said, a property held between two people is always potentially a big source of contention and issues . Yeh another reason to avoid.

Terron

I have pensions and BTLs in my own name and in a company. BTL certainly still works were I am (and despite my lack of DIY skills). Still unless you have more than £40k pa per person to invest or advanatges to doing a BTL (experience, living in or knowing a suitable area, etc.) I would recommend a pension. A BTL can give better returns even with the tax break for a pension. However that requires some knowledge, work and luck. You are already working on your own business and I suspect that it would be better to concentrate on what you know. Sticking the money in a pension should give decent growth with much less effort.

atush

TrevorHampton wrote: »

My business partner and I run a small company and want to either start a business pension or purchase a property to let out via the company. Which would be best as a long term investment?

Pension w/o question. The pension will lower your tax. A BTL will raise your tax {(ie double stamp duty, tax on income and gains etc)

Terron

atush wrote: »

Pension w/o question. The pension will lower your tax. A BTL will raise your tax {(ie double stamp duty, tax on income and gains etc)

Well if using a company, as the OP suggested, you can avoid/defer tax on the income by paying it into a director's pension. So far I haven't paid any tax except SDLT through my BTL company yet. I have been reinvesting to grow the company the costs of doing so have exceeded my profits so far. I have used capital growth on the first property to increase the mortgage on it and provide most of the deposit for another property. I did pay a £500 dividend which I then lent back to the company. Repaying the loans will allow me to take about £100k back out having only paid dividend tax. With a small BTL company tax is not a great problem.


Note that it should be a separate company, lenders prefer that.

TrevorHampton

Thank you for the advice, the clear leader is a pension. Are there any pension companies that anyone can recommend?

jamesd

BTL has one big advantage: leverage via a mortgage. A couple of smallish properties mortgaged at 60% LTV, say.

Smallish properties means smaller capital gains per sale which can be convenient. And the lower the price, the more properties you can buy to increase diversification.

cns06

Personally as a LTD company owner my priority would be SIPP then ISAs then other investments such as property. Basically once you are investing over £60k a year then you are (IMHO) into the likes of BTL.