Buy to Let or Pension investment?

bostonerimus

Thrugelmir wrote: »

Making the property tax free is the challenge. Not as easy as people assume. Good years of BTL a decade or so ago was all about flipping a capital gain. For doing nothing.

I'd never do BTL before a SIPP or ISA, but it is a nice compliment to those two. The numbers need to work, so you must buy at a good price and consider the expenses as well as looking at the rental income you will get. I would do it as a long term investment, so no flipping, and once the mortgage is paid the rent will be a very nice bit of reliable income and the property can be a good store for capital, although you need to be careful about the tax.

capital0ne

MEM62 wrote: »

Incorrect.

Incorrect mate

As of April 2020, all mortgage interest will only receive the tax credit.

Read more: https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782 - Which?:rotfl::rotfl::rotfl:

MEM62

Dazed_and_confused wrote: »

Well it's what Which are saying

https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782

capital0ne wrote: »

Incorrect mate

As of April 2020, all mortgage interest will only receive the tax credit.

Read more: https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/buy-to-let-mortgage-tax-relief-changes-explained-atnsv0j6j782 - Which?:rotfl::rotfl::rotfl:

You boys both need to learn to read. Tax relief on interest is not being phased out, it is being reduced to 20%. Therefore the impact is only on 40% tax payers as they will loose the additional 20% tax relief that they were previously able to claim.

Ciprico

...when I was in my 20's I bought a 4 bed house and rented out rooms to lodgers. (So I appreciate not BTL).

However, it does remove many of the BTL obstacles, ie no CGT as primary residence, "normal" first time buyers mortgage, and you can (currently) earn about 7.5K tax free.

Not for everyone I fully realise, but when I was in my 20's, having other housemates in their 20's paying most of the bills/mortgage meant I owned a big house outright after less than 10 years....

I don't think you even have to physically live in the house - if you keep a bedroom empty as your own you have owner rights as opposed to landlord rights (check this).

I appreciate for most on this forum (over 50 years old ?) having lodgers is not a viable option - but anyone starting out could be worth a consideration...

Dazed_and_confused

You boys both need to learn to read. Tax relief on interest is not being phased out, it is being reduced to 20%. Therefore the impact is only on 40% tax payers as they will loose the additional 20% tax relief that they were previously able to claim.

That is completely wrong. You might be a basic rate payer under the old system but the new rules mean you are likely to have more taxable income. Which could mean you become a higher rate payer. And the tax credit won't offset that.

And the higher taxable profit amount could now make you become liable to the High Income Child Benefit Charge.

Or have more HICBC to pay than previously.

Or start to lose your Personal Allowance (or lose more of it than you would have done under the old rules).

Or lose some of your Married Couple's Allowance.

Or stop you being eligible for Marriage Allowance.

Malthusian

123mat123 wrote: »

Not for everyone I fully realise, but when I was in my 20's, having other housemates in their 20's paying most of the bills/mortgage meant I owned a big house outright after less than 10 years....

Out of interest, how easy was it to get a mortgage for a 4 bed house in your 20s at the time?

Very few 20-somethings can realistically afford a 4 bed house under current affordability criteria. Most that can would simply buy a smaller place for themselves and invest in other ways.

A few years ago I was considering something similar on a smaller scale. But if I had I would have shovelled more money into my pension rather than overpaying the mortgage. Being mortgage-free is not a good thing if you have access to investments with a high chance of returning more than the mortgage rate. Which applies to most people who can make tax-relieved pension contributions.

MEM62

Dazed_and_confused wrote: »

That is completely wrong. You might be a basic rate payer under the old system but the new rules mean you are likely to have more taxable income. Which could mean you become a higher rate payer. And the tax credit won't offset that.

And the higher taxable profit amount could now make you become liable to the High Income Child Benefit Charge.

Or have more HICBC to pay than previously.

Or start to lose your Personal Allowance (or lose more of it than you would have done under the old rules).

Or lose some of your Married Couple's Allowance.

Or stop you being eligible for Marriage Allowance.

I will always admit when I am wrong and I stand corrected.

Whilst focused on % taxation changes I did not pick up on the change in the way that income is declared.

I found a simulator online into which you can plug the figures. I currently set my salary sacrifice percentage for my pension so that I sit just under the 40% tax bracket. It looks like I may be tweaking that and a little more will be going into my pension to keep me below the threshold in future. Fortunately, the impact for me is not huge.

Dazed_and_confused

It is correct that for a lot of people it may not make any material difference.

But for others it will and some basic rate payers will become higher rate payers as a result of this.

Ciprico

Malthusian wrote: »

Out of interest, how easy was it to get a mortgage for a 4 bed house in your 20s at the time?

Very few 20-somethings can realistically afford a 4 bed house under current affordability criteria. Most that can would simply buy a smaller place for themselves and invest in other ways.

A few years ago I was considering something similar on a smaller scale. But if I had I would have shovelled more money into my pension rather than overpaying the mortgage. Being mortgage-free is not a good thing if you have access to investments with a high chance of returning more than the mortgage rate. Which applies to most people who can make tax-relieved pension contributions.

It was all a long time ago (mid 80/90s). The Building Society was not interested as I had a guarantor.

BTL didn't exist then as a "thing", so it probably never occurred to them to ask...

Back then interest rates were massively higher (and unpredictable 15% for a short period) - so paying off Mortgage was seen as a priority.

This was a long time before ISAs, SIPPs and EFT trackers, back in the days of TESSAs, PEPs, "Carpetbagging" Building Societies and buying shares in Government own utilities as they privatised.....

Oh the good old days, so much more colourful and interesting than chucking money in a Lifestyle product and forgetting about it...!