On retirement can I invest my DC pension fund in a house to let ?

NeverOutOfWork

I am just retired aged 64 following redundancy. In addition to sufficient redundancy money to live on for the next year or so I have a "final Salary" pension to claim at age 65, a full state pension to claim at 66 and my wife also has a full state pension, recently started paying out aged 66.

I also have £160k in a DC pension fund and wonder if I am allowed to buy a house with it (if I add some cash which I can) there are a fair few available in my area, no mortgage required.  That would rent out and produce a good additional income.

thanks Bob

daveyjp

You could, but when all costs of property ownership and management are taken into account will it produce a higher return than the many other ways of investing £160k for a return?

Brie

There used to be talk about putting money into a SIPP and using that to buy a house but I don't know if that was ever allowed.  There was (going back about 20 years....) something about it had to be a business premises rather than a "home" which I think was to stop someone from using it to buy a house that they themselves might live in.  Of course there was also talk at the time of investing in wine, sports/vintage cars, paintings....  It may be that some of this was gotten around by buying into a company that invested in BTL property etc.

Ultimately you certainly would be able to take your 25% tax free lump and use that towards an investment property.  And then get a mortgage to make up whatever difference there is in the value of the property.  Income for the the mortgage would be other investment income plus your other various pensions.  Possibly may mean getting your DB pension a bit early so you can be able to pay off the mortgage by 70 or so.

Pat38493

Brie said:

There used to be talk about putting money into a SIPP and using that to buy a house but I don't know if that was ever allowed.  There was (going back about 20 years....) something about it had to be a business premises rather than a "home" which I think was to stop someone from using it to buy a house that they themselves might live in.  Of course there was also talk at the time of investing in wine, sports/vintage cars, paintings....  It may be that some of this was gotten around by buying into a company that invested in BTL property etc.

Ultimately you certainly would be able to take your 25% tax free lump and use that towards an investment property.  And then get a mortgage to make up whatever difference there is in the value of the property.  Income for the the mortgage would be other investment income plus your other various pensions.  Possibly may mean getting your DB pension a bit early so you can be able to pay off the mortgage by 70 or so.

I think that there is a way you can buy business premises with your pension, and then have the business pay the rent back into your pension, and/or lend your pension money to your business as a loan.  Both of them I think are pretty niche things that clearly would require paid advice and a lot of thought.

Kim1965

NeverOutOfWork said:

I am just retired aged 64 following redundancy. In addition to sufficient redundancy money to live on for the next year or so I have a "final Salary" pension to claim at age 65, a full state pension to claim at 66 and my wife also has a full state pension, recently started paying out aged 66.

I also have £160k in a DC pension fund and wonder if I am allowed to buy a house with it (if I add some cash which I can) there are a fair few available in my area, no mortgage required.  That would rent out and produce a good additional income.

thanks Bob

How much income do you think the let would generate? 

sighup

It's possible to invest in commercial property via a  SIPP which has this option, but as this is a complex topic you would need an authorised person to discuss this with you?

HappyHarry

NeverOutOfWork said:

I am just retired aged 64 following redundancy. In addition to sufficient redundancy money to live on for the next year or so I have a "final Salary" pension to claim at age 65, a full state pension to claim at 66 and my wife also has a full state pension, recently started paying out aged 66.

I also have £160k in a DC pension fund and wonder if I am allowed to buy a house with it (if I add some cash which I can) there are a fair few available in my area, no mortgage required.  That would rent out and produce a good additional income.

thanks Bob

No, you can’t hold residential property in a pension.

(Technically you can but the tax penalty is so horrendous it would be better to withdraw all the funds and pay income tax at 45% and purchase property with the proceeds).

Marcon

NeverOutOfWork said:

I am just retired aged 64 following redundancy. In addition to sufficient redundancy money to live on for the next year or so I have a "final Salary" pension to claim at age 65, a full state pension to claim at 66 and my wife also has a full state pension, recently started paying out aged 66.

I also have £160k in a DC pension fund and wonder if I am allowed to buy a house with it (if I add some cash which I can) there are a fair few available in my area, no mortgage required.  That would rent out and produce a good additional income.

thanks Bob

You can't hold residential property in a SIPP.

You could hold commercial premises in a SIPP, but there are significant costs associated with doing so - and your fond belief that it would 'produce a good additional income' might, sadly, prove misguided. Concentrating a substantial part of your pension assets in one place, which is what you'd be doing, leaves you vulnerable to market forces in a way which wouldn't occur if you spread the risk to different asset classes.

Mutton_Geoff

£160k single drawdown will net you about £125,500 after tax, assuming 25% tax free and the rest taxed at standard rate with no other taxable income.

QrizB

Mutton_Geoff said:

£160k single drawdown will net you about £125,500 after tax, assuming 25% tax free and the rest taxed at standard rate with no other taxable income.

I make it less than £120k after tax?

Also, OP does have taxable income this year from employment, and next year onwards from pensions.

Mutton_Geoff

QrizB said:

Mutton_Geoff said:

£160k single drawdown will net you about £125,500 after tax, assuming 25% tax free and the rest taxed at standard rate with no other taxable income.

I make it less than £120k after tax?

Also, OP does have taxable income this year from employment, and next year onwards from pensions.

Corrected my sums. Assuming no other income (not correct as you pointed out in OP post).

25% tax free equals £120k subject to tax. Loss of £10k of personal tax code due to > £100k.

0 - £2,570 = £0 tax
£2,571 - £40,270 = 20% tax = £7,540 due
£40,271 - £120,000 = 40% tax = £31,892 due
£160k less total tax of £39,432 = £120,568 in hand

Of course the tax position will be worse with other earnings so cashing in to then buy a business doesn't make sense.