What to do with proceeds from my buy to let flat sale

N1_EP

Hello Everyone, 

Following advice from the wise people on this forum I have now accepted an offer on my buy-to-let flat and am looking ahead with regards how best to work with the proceeds.

After expenses CGT and paying off the remaining mortgage I will have about £300k.

My partner and I owe £515k on our home that we live in with our 2 young children.  

We want to reduce that debt as our fixed term mortgage (1.4%) will end in Oct. 25.

The balance I want to get right is how much to pay off against our existing mortgage and how much to put into pensions / savings / investments.

For background I am 47 with little to no pension. My partner and I are not married but do co-own our home and we have our 2 children togeter. My partner pays the mortgage on our home. She earns £140k per year and I earn between 60-80k (I am freelance so it varies).


Thank you in advance for any advice you can give. 

masonic

How much to invest vs pay down the mortgage is often quite a personal decision. But given you'll be remortgaging in the short term, it may be worth keeping your options open until you know what sort of outcome you could get with that. Increasing pension saving from income would seem like a no-brainer in the interim, and making full use of your ISA allowance if you haven't already. But perhaps any large scale investment plans should wait.

Hoenir

You will be limited how much you can pay into your pension next tax year. By the time the sale completes. Probably worth paying off a sizable chunk off your mortgage in October. When the fixed term ends and before refixing. As you'll be faced with a considerable jump in the mortgage interest rate. 

jimjames

If you have no pension then sorting that would appear to be a priority. Was your original intention that the BTL was your pension? You can pay in an amount up to £60k equivalent to your earnings minus any existing payments (presumably zero?) Not directly related to this but if you don't have a will then getting once would be a good idea.

Keep_pedalling

Sorry to go off on a tangent, but when I saw that you are unmarried with children I have to ask this. Have you made wills and put financial lasting powers of attorney in place? If not spend a tiny amount of it getting both those things put in place.

It also sounds like if one of you met an untimely early death the surviving partner will be hit by an IHT bill, so it would be wise to consider marrying or forming a civil partnership to take advantage of spousal exemption.

MX5huggy

Will you get the money before April 5th? 

If you consider the two of you as one and share everything then I would make a pension payment for her to get her income below £100k so she doesn’t pay any 45% or loose her personal allowance (I think combined this is about 60% tax). Note I’m not that familiar with additional rate tax payers and the rules not a problem I have to deal with.
Then I would pay in both your pensions to get to £60k earnings each (she can use carry forward to pay more than £60k into a pension this year, presuming she has a pension opened previously) so you can claim Child Benefit for both children. 

What’s the LTV on the home, if it’s sensible (under60%) I wouldn’t pay it off when you’re making 40% plus tax savings contributing to a pension. 

MX5huggy

£20k in ISA each now then £20k in April each so £80k used, £50k each in Premium Bonds (tax free returns). £180k used. 

£9k before and after April into JISA for each child another £36k hidden from the tax man but not accessible till the kids are 18 and it’s their money. You could do pensions for them as well £2880 each tax year goes in gets grossed up to £3600, so that’s another  £11520 hidden by mid April, they get access at 58 plus. 50 years in cheap Global tracker has got to be a winner. 

N1_EP

Thanks everyone. this is really great advice as always.

I am not keen on marriage but I can see we are being foolish by not having something set up.  I appreciate the note on wills - ours are very much out of date.  Does anyone have any advice on how / who to get wills arranged. 

I may get the money before 5th April but it will be literally a day or so before of a few days after most likely. so I may need a plan A and plan B.


Yes @jimjames the BTL was indeed my pension plan. I am quite worried about how exposed I feel now it is being sold so having a pension set up is crucial to me.   

Bigwheels1111

I read your post, the bits that sticks out is, my buy to let. Our mortgage, she pays.
Who money is who’s or is it all just jointly owned.

In our wills, we worked out who had what as such.

80% went to my Brother.
15@ went to her family.
5% to our great niece.

We added up everything we owned, who had paid for what etc.
For eg, my house and it proceeds from selling it.
Savings etc.

82.5% was mine & 17.5% was hers.
So we decided to dispose of funds this way.
First everything went to the survivor.

In your case does everything goes to you or your wife, then kids after both parents are gone.
Just your house alone will leave a huge tax bill for the kids, had you thought about that.

Keep_pedalling

N1_EP said:

Thanks everyone. this is really great advice as always.

I am not keen on marriage but I can see we are being foolish by not having something set up.  I appreciate the note on wills - ours are very much out of date.  Does anyone have any advice on how / who to get wills arranged. 

I may get the money before 5th April but it will be literally a day or so before of a few days after most likely. so I may need a plan A and plan B.


Yes @jimjames the BTL was indeed my pension plan. I am quite worried about how exposed I feel now it is being sold so having a pension set up is crucial to me.   

You should use a local solicitor to get your wills drawn up, please don’t be tempted to DIY or use an unregulated will writing company. Be aware that getting married or forming a civil partnership will. invalidate your wills unless they have been drafter in contemplation of marriage / CP.

LPAs you can do yourselves.

https://www.gov.uk/power-of-attorney

N1_EP

@Bigwheels1111 we haven't thought about the potential tax bill for our kids on this house no.

I think you have pinpointed a sticking point in our finances that we really need to sort out who actually owns what as we've always been sort of separate and now i'm selling the BTL and putting more into the house it changes things.  We know if my partner makes larger pension contributions its better  from a tax perspective but it leaves me with no pension and no BTL... 

@keeppedalling thank you for that advice re. solicitor. We have one in place who is helping with the sale so maybe he can do it. I can ask.