Do we keep ours to rent out for future pension

happygirl01

Hi All
we have lived in our house 19 years this month and only owe 10k
It’s worth around 170k and we want to move house.
new house will be approx 230k.
We have savings of around 40k

My questions are;
1. Would keeping ours so we have something for the future to sell for our pension, and would renting it out be worth it after paying tax. Rent would be approx £1000 a month, so profit after paying mortgage/ insurance 800 per month (I realise there will be tax to pay) to go towards our other house which we will obviously have to mortgage to around 190k after putting 40k down 
2. If we keep do we use savings to pay off the remainder of the mortgage

3. Do we sell and just put money in to the next house and have a mortgage on the rest.

Any advice welcome, we have an appointment with a mortgage broker in a few weeks and someone has advised a financially advisor. 

Thanks in advance 

propertyrental

Don't underestimate the running costs - not just mortgage/insurance!

Don't count on £1000 x 12 a year - there will be voids.

Allow for non-paying tenants/damage etc - you might have 6+ months with no rental income.

Do a full, realistic budget - only then can you calculate likely tax

Don't be emotionally attached because you lived there for 19 years - it will become your tenants' home, not yours.

Consider selling and investing - less stress, less work, and if you max out your pension contributions it's far more tax efficient.

happygirl01

Not emotionally attached to the property at all can’t wait to go and we are just thinking sell but, it’s more for the fact that in 15 years we sell and have that money as a pension to log towards retirement as we are both self employed so it would be nice to know we have for the future. 
if it’s not financially worth it then it’s not worth doing. 

The house is fully renovated and new boiler, new front and patio doors so costs will be minimal for a while as everything has been done recently, but yes I understand there may be some costs. 

njkmr

Move to your new property with the smallest mortgage you can.
All the spare cash can then be invested for your futures.
Renting is not a money tree bearing fruit .

propertyrental

If you sell now, the capital will grow over 15 years if invested, but without the agro. And instead of paying tax on the income, the government will actually give you additional money if you invest in a pension now.

p00hsticks

You don't say what country you are in, but don't forget that you'll pay additional Stamp Duty Land Tax or equivalent on your purchase if you are retaining the existing property as it will be a second home (an extra 3% in England and N. Ireland, so around £6,900, not sure what it is in Wales / Scotland but think it may be even higher) .

macman

Are you prepared to take on all the many and onerous legal responsibilities of a landlord? I don't think you have for a moment properly considered all the additional costs: EPG, EICR, GSC, deposit protection scheme, LL licensing (if in a relevant LA area), agent fees (unless self-managing), credit checks, inventory...
What actual return can you expect? It certainly won't be £800pm net. Compare that with the safe 5%+ you can get on a cash savings account and ask yourself if it is really worth it.

user1977

Do you have no actual pension (or savings beyond the £40k)? You'd probably be far better putting the cash into a pension - there are no pension-related tax benefits from investing in (residential) property.

TBagpuss

I personally would not retain and rent out the old house - you would effectively be putting all of your finacial eggs in one basket, and taking on the legal responsbilities and rrisks of becoming a landlord. In addition, as you can't sell pat of a house, when you wanted to rertire and sell up, you would potentially have a substnatial CGT bill.

As others have sad, while the idea of getting £800 a month 'profit' is atttractive, you would need to do a proper budget - how mucgh of that would you need to pay the higher amounts on your new resential mortgage? How much goes in tax? How much do you need to set aside to cover repiars, mainteance, legal and agents fees, an emergency fund to ensure that you an cover the mortgage if you have periods where you have no tenants or the tenants are not paying?
Do you  want to become landlords? Have you done your research abput what yor legal obligations are? 

If you sell now, you can invest any proceeds not needed to buy your new home (or invest  all of the equity into your new home and budget to pay the difference in the mortgae you would be paying if you haden't, into pensions or other investments)

If you invest into a pension then you will get extra money on top from the government -  .and when you retre, can take up to 25% tax free although you will of course pay income tax on the balance as you draw it (dependent on your total income) but don't pay CGT.

If you invested in shares then you might pay CGT when you sold them, but could spread this over multiple years to reduce the bill, and of course you may be able to limit tax by investing in an ISA if you have not already used your entitlment 

Albermarle

 it’s more for the fact that in 15 years we sell and have that money as a pension to log towards retirement 

As others have said why not start an actual pension fund? Much less hassle .

peterhjohnson

TBagpuss said:

If you invest into a pension then you will get extra money on top from the government -  .and when you retre, can take up to 25% tax free although you will of course pay income tax on the balance as you draw it (dependent on your total income) but don't pay CGT.

Also consider putting some of the money in a Stocks and Shares ISA. OK, there are no tax advantages going in but there is NO tax on taking money out. As a retiree with both a drawdown pension AND an ISA, I draw just enough to avoid tax from the pension and  as much from the ISA as I want :-)