Official. Property is better for retirement than a pension.
Discussion
Jockman said:
Countdown said:
Hypothetically - sell the BTLs to the kids - they buy you out by repaying you £500pcm per property. It saves them getting a mortgage and corresponding interest. It saves you having to pay IHT, Income tax, or CGT. It gives you and your wife a reasonable retirement income.
I'm sure there's a flaw in my plan somewhere....
Stamp duty? There will be a change of ownership? Would HMRC not tax the parents on the market rent rather than the rent received?I'm sure there's a flaw in my plan somewhere....
IHT and income tax would only be avoided with certain assumptions fulfilled.
Someone mentioned earlier about pensions not being able to be passed on to children after death but property can, to which someone mentioned CGT. I thought if you lived off rental income until death, the property enters your estate and is free of CGT, with CGT only applicable if you sell in your lifetime?
To me now, since the recent changes, the biggest barrier to the average BTL punter (not cash buyers) is the fact that you could previously separate your residential mortgage from any BTL mortgages you have, with your tenants paying them down for you over time. You could happily move onwards and upwards in life, moving to a bigger house/bigger mortgage, irrespective of your BTL pension plans. Now, I believe, any BTL mortgages you have are 'counted' towards your maximum mortgage availiable on your residential one.
Maybe I'm wrong, but this means someone on say 50k/year with a £120k residential mortgage and, say, 2 £50k BTL's (total £220k) will now be screwed if they want to move house and up their residential to £170k for example, previously ok. As the BTL's are now included for affordability of the residential.
To me now, since the recent changes, the biggest barrier to the average BTL punter (not cash buyers) is the fact that you could previously separate your residential mortgage from any BTL mortgages you have, with your tenants paying them down for you over time. You could happily move onwards and upwards in life, moving to a bigger house/bigger mortgage, irrespective of your BTL pension plans. Now, I believe, any BTL mortgages you have are 'counted' towards your maximum mortgage availiable on your residential one.
Maybe I'm wrong, but this means someone on say 50k/year with a £120k residential mortgage and, say, 2 £50k BTL's (total £220k) will now be screwed if they want to move house and up their residential to £170k for example, previously ok. As the BTL's are now included for affordability of the residential.
Countdown said:
Stamp Duty - yes but tolerable I think in the overall scheme of things, especially when considered against a 40% IHT rate. The parents aren't receiving income, they're getting the sale proceeds paid out over 25 years (it's basically an interest free loan to the kids).
The loan would be treated as an asset for IHT calculations.Jockman said:
Ginge R said:
A nice juxtaposition. Now, if you're really bored (!) place the property in a Ltd property company instead. Transferring an existing portfolio in would be a disposal for capital gains tax purposes, so you'd be hit with a hefty tax bill and there'd be stamp duty for anything worth over £125,000. So, it's probably too difficult for existing held property, but for new purchases it has possibilities. Especially when growing the portfolio by reinvesting profits (instead of drawing dividends) and bringing trusted family members onboard for continuity planning.
Ginge you would need to keep your eye on whether the company would be an investment one or a trading one. I'm sure Eric mentioned something in previous posts but I'm not sure of the exact detail.
As you and Eric imply, having clarity about the trading status is also key (you won't get IHT Business Relief on an unlisted company trading in land or properties for instance), but there can be advantages in retaining or dispensing cash to shareholders (the kids). And if the managing director (mum or dad?) don't need the excessive income - it can significantly reduce a higher personal tax bill. As always, there's no one size fits all, and many decisions will be finely balanced between the two.
But, for some folk who have a clear view of the strategy, there may be significant benefits by opting for one over the other.
desolate said:
Countdown said:
Stamp Duty - yes but tolerable I think in the overall scheme of things, especially when considered against a 40% IHT rate. The parents aren't receiving income, they're getting the sale proceeds paid out over 25 years (it's basically an interest free loan to the kids).
The loan would be treated as an asset for IHT calculations.At the moment, particularly, diversifying into bricks and mortar makes even more sense for some people - I'm thinking of it. My issue is one of striking the right price at the right time; I've always bought in a crash or a slump. Yeah yeah, never try to time the market, I know, but it's all about the negotiation.
desolate said:
Someone better qualified than me will confirm but certain pensions can be passed down to people to inherit.
You can't keep private houses in a pension though.
Before 75 years of age....correct.You can't keep private houses in a pension though.
No private houses in pensions.....correct.
(residential land ok to planning stage).
New legislation changed things slightly, the other year. Pensions no longer need be passed 'down' in the accepted sense. You can now leave them to any nominated beneficiary, not just someone in your bloodline. This still applies after the age of 75, with the application of tax at the beneficiaries marginal rates - hence, why not nominate numerous beneficiaries to reduce the tax slice? There's zero tax if you are considerate enough to die before aged 75, just make sure the beneficiary takes it within two years.
If you think you're going to die imminently, or within a couple of years, don't bother packing the pension just to get the tax relief and a larger pot to bequeath, HMRC will probably challenge it. Although it does leave the interesting notion of putting money into the pension wrapper without collection of tax relief. I've yet to find a provider who will take contributions 'net' (ie, without tax relief being collected), and although I'm quite certain it would be challenged under avoidance measures, it is an intriguing inheritance tax avoidance measure.
Julian - any thoughts mate.. and do you know anyone?
If you think you're going to die imminently, or within a couple of years, don't bother packing the pension just to get the tax relief and a larger pot to bequeath, HMRC will probably challenge it. Although it does leave the interesting notion of putting money into the pension wrapper without collection of tax relief. I've yet to find a provider who will take contributions 'net' (ie, without tax relief being collected), and although I'm quite certain it would be challenged under avoidance measures, it is an intriguing inheritance tax avoidance measure.
Julian - any thoughts mate.. and do you know anyone?
^^^ The simple way to express this is that pension pots don't fall within your estate (IHT) so long as they go into someone else's pension pot. This can be any number of people you choose.
If death occurs before age 75 there's no tax for the beneficiary to pay; if after 75 the beneficiary is subject to income tax.
You do need to make sure you have completed an Expression of Wish Form to nominate a beneficiary to receive your pension pot. This is NOT the same as your Will - it's a separate process.
If death occurs before age 75 there's no tax for the beneficiary to pay; if after 75 the beneficiary is subject to income tax.
You do need to make sure you have completed an Expression of Wish Form to nominate a beneficiary to receive your pension pot. This is NOT the same as your Will - it's a separate process.
Andrew Bailey (FCA) spoke on this, this afternoon.
http://citywire.co.uk/new-model-adviser/news/fca-c...
You may be subject to a paywall with this one..
http://www.telegraph.co.uk/news/2016/09/16/city-wa...
http://citywire.co.uk/new-model-adviser/news/fca-c...
You may be subject to a paywall with this one..
http://www.telegraph.co.uk/news/2016/09/16/city-wa...
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