Age 52, chronically ill, access to pension

p999j · 30 May 2018 at 4:21PM

I believe I can take out 25% tax free, but I receive a basic income from my health insurance.

I would love to buy a house but on a pension pot of £150k, I’d need to pay over £45k in tax if I did take it all out.
So is there any hope of me ever buying a home?

I don’t know if I’d get a mortgage cause of poor credit rating( when I was still paying mortgage and got into debt due to illness) and age.

Brynsam · 30 May 2018 at 5:23PM

If you've got a poor credit rating, and you are already 52, your chances of getting a mortgage are very low, particularly if (as your question suggests) you don't anticipate working again, or certainly not in the near future.

Just being in chronic ill health won't automatically enable you to access your pension savings before the age of 55. Check with your provider exactly what the requirements are. You also need to check that accessing your pension won't bring the payments from your permanent ill health insurance clattering to a halt.

I'm sorry this is such a negative reply, but raising false hopes only to have them dashed would be even less helpful.

Dox · 30 May 2018 at 9:39PM

Mortgage lenders are most interested in your ability to repay your loan. It's hard to see how you can demonstrate that you will be in a position to do that, if you only qualify for 'a basic income' from your insurance policy, which will presumably stop by age 65 (or thereabouts) at the latest.

Buying a home might be emotionally attractive (it is to most of us), but not be in your best financial interests, depending on the state benefits for which you currently/potentially qualify. Ditto accessing your pension pot early - check with an organisation such as turn2us.org.uk what impact that might have.

CBX1985 · 31 May 2018 at 12:40PM

If you have a terminal illness, and a doctor declares you have under a year to live, you are able to withdraw your pension early and you get a tax free lump sum, and the rest paid with PAYE.

But as you are looking at buying a house, I presume this is not the case, in which case no you can't. And thank goodness for that.

jamesd · 31 May 2018 at 1:13PM

CBX1985 wrote: »

If you have a terminal illness, and a doctor declares you have under a year to live, you are able to withdraw your pension early and you get a tax free lump sum, and the rest paid with PAYE.

100% of a pot can be taken tax free if the no more than a year to live requirement for a serious ill health lump sum is met.

Ill health early retirement before 55 probably does have the usual 25% but I haven't checked. Requirements for being able to do this vary between providers.

Lungboy · 31 May 2018 at 1:13PM

It might not need to be terminal, just something that stops you from ever working again, but that depends on the pension scheme. Simply having a chronic illness isn't enough though.

Brynsam · 31 May 2018 at 1:14PM

CBX1985 wrote: »

If you have a terminal illness, and a doctor declares you have under a year to live, you are able to withdraw your pension early and you get a tax free lump sum, and the rest paid with PAYE.

Not quite right. If you qualify under the 'serious ill health' regime, and belong to an occupational pension scheme, depending on the rules of the scheme in question you may be able to take the lot as a lump sum. If not, you may be able to transfer out to an arrangement where you can take all your benefits as a lump sum.

If it's a personal pension/SIPP, you can take the lot as a lump sum.

The lump sum is paid tax-free, subject to it being within an individual's remaining lifetime allowance.

jamesd · 31 May 2018 at 1:33PM

p999j wrote: »

I would love to buy a house but on a pension pot of £150k, I’d need to pay over £45k in tax if I did take it all out.

Peer to peer lenders like Ablrate might consider this if you pitch it as a bridging loan to save income tax.

The general solution to the tax problem is to spread the drawing of the money over several tax years so it's all taxed at basic rate. With 150k that's 112.5k taxable. I don't know your basic income but if the whole of the 34500 basic rate band is available that means 3.3 tax tears, actually 4 for the last bit. You'd structure it like this ideally:

1. few months from end of tax year 1 take tax free lump sum and 34.5k taxable.
2. start of tax year 2 take another 34.5k taxable.
3. use the money from 1 and 2 to buy and reduce the amount of borrowing needed, borrow as much as needed.
4. next tax year repay most of the borrowing.

Borrowing like this as bridging is expensive, likely 1-2% a month. Patience and waiting until tax year 3 to buy could easily be a better idea.

HNW Lending would probably offer better terms and would certainly understand the tax arbitrage issue that makes borrowing a better idea.

Brynsam · 31 May 2018 at 5:51PM

OP, what would you live on if you are using so much of your money to buy a property?

p999j · 1 June 2018 at 4:22PM

My health insurance is £17k per annum and I receive personal independence payment for daily care.

So I pay basic tax rate on the taxable element of the £17k.

xylophone · 1 June 2018 at 4:59PM

https://forums.moneysavingexpert.com/showthread.php?t=4795251&page=2

I know that selling the house would be a resolution, and in a way, the 'get on with it' tone has been helpful. That's all I can do. But I intend to stay in my house, so having made that decision, I will let my spare room and make some income that way.

Did you sell the property in favour of renting?

Or do you still have the property and are considering buying another as an investment, using your pension?

Age 52, chronically ill, access to pension

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