Pension idea. What's the catch?
Discussion
I got a statement in for a little pension plan I started years ago.
There is about 60k in there.
I live in the NEast and in some areas you can get a decent recently refurbed property for that.
They tend to go for 4-500 a month rental.
Now I wont be needing to draw on this pension for 25 years or so.
Buy, rent and once expenses are out, put the income away either in another pension plan or the bank.
Is this a good plan or not?
There is about 60k in there.
I live in the NEast and in some areas you can get a decent recently refurbed property for that.
They tend to go for 4-500 a month rental.
Now I wont be needing to draw on this pension for 25 years or so.
Buy, rent and once expenses are out, put the income away either in another pension plan or the bank.
Is this a good plan or not?
Profits on rent are not guaranteed.
Losses are limited regarding tax reliefs available
If you do make profits on the rent, you will pay Income Tax on those profits - psossibly at 40% or even 50%
If and when you do sell the property, you will pay Capital Gains Tax on any gains (although there are ways to mitigate this).
Losses are limited regarding tax reliefs available
If you do make profits on the rent, you will pay Income Tax on those profits - psossibly at 40% or even 50%
If and when you do sell the property, you will pay Capital Gains Tax on any gains (although there are ways to mitigate this).
wildcat45 said:
Ah I see. So anyincome I make on top of my salary automatically gets 40 or 50 per cent tax.
My figuring was that if I bought a place outright and took any hits, no rental periods, repairs etc, out of my salary, the profit would go into ISA type accounts or another pension.
Your terminolgy is confusing. "Took no hits"?My figuring was that if I bought a place outright and took any hits, no rental periods, repairs etc, out of my salary, the profit would go into ISA type accounts or another pension.
Are you suggesting that you can own and manage a property and not incur any expenses in doing so?
Sorry. Didn't make myself clear.
Cash in a pension worth around 60k and buy a house outright, no mortgage with the intention of letting it out. Then putting the money from rent either into a bank or another investment, pension or whatever.
I would propose to pay for any costs out of my usual daily income. Costs being repairs etc and covering any months where the property was not let.
The sort of places I am looking at go for around the 60k mark and typically rent for £4-500 PCM.
That seems to me to be a better return than the pension plan.
I guess though there must be a catch.
Cash in a pension worth around 60k and buy a house outright, no mortgage with the intention of letting it out. Then putting the money from rent either into a bank or another investment, pension or whatever.
I would propose to pay for any costs out of my usual daily income. Costs being repairs etc and covering any months where the property was not let.
The sort of places I am looking at go for around the 60k mark and typically rent for £4-500 PCM.
That seems to me to be a better return than the pension plan.
I guess though there must be a catch.
If you can buy a house for £60k, and can raise the deposit by other means, then it might be worth doing this as well (if you can't cash the pension in). Even if you have to pay £200 per month or so on the mortgage (even consider interest only) this will be a bit like contributing o a pension fund anyway. Bear in mind also that whilst your tenent is paying your mortgage, the value of the house is also increasing so you win twice.
If you are under 55 then 'cashing in' with definitely incur tax charges as a potentially unauthorised payment. Funnily enough, the Pensions Regulator is looking into the Pension Liberation situation. If you are over 55 then you could elect to take early retirement of a severely actuarially reduced pension plus Tax Free Cash Lump Sum.
Cash only schemes were severely curtailed after 'A Day' and now have to provide some recurring benefits plus a TFCLS.
If you are under 55 and a company says it can 'release' your pension to you, be aware that this is against the legislation and you will get hammered for tax. Absolutely hammered.
Cash only schemes were severely curtailed after 'A Day' and now have to provide some recurring benefits plus a TFCLS.
If you are under 55 and a company says it can 'release' your pension to you, be aware that this is against the legislation and you will get hammered for tax. Absolutely hammered.
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