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I have always planned to fund my retirement from my business/Property earnings but some of DL's recent posts have encouraged me to look into the efficacy of diversifying into pensions. Whilst I think some diversity is probably wise I cannot justify the business case for pensions.
In the example below I have allowed for a 20% tax deduction on pension contributions so a £320k contribution is rounded up to £400k. On the BTL I have put the same £320k through a company at 50% LTV with a 3% mortgage rate, 4.5% rental yield and 80% of this as net after voids and expenses.
Further assumptions are 5% value increase in pension fund and 2% capital growth and rental growth in BTL. I have used the net rent as a drawdown figure for the pension to keep things equal.
As you can see from the charts below (hopefully will format okay) after 9 years the BTL pulls ahead and continues to gain.
I realise this is an oversimplicated comparison but both have other advantages and disadvantages that should negate to each other to a large degree.
Hi Paul,Some other threads on this topic - FYI:Pensions don't make money? Think again!Better off with pension than property? Pension result this year £9730 to £11664 Knowledge of My Goal Is ..pension investment ONS: 49% say property provides best pension Is BTL a good place for your Pension Fund? 50% of the nation bank on property as pension Pension Planning and BTL ISA pension or keep investing in property - or both?
Vanessa Warwick Landlord and Co-Founder of PropertyTribes.com **If you have got value from Property Tribes, find out how you can support it in remaining a free to use community resource**
I too have been thinking about this very issue over the last month or so.
I've been split between further BTLs' over Pension\Stocks and Shares ISA's.
The benefits of furher BTL purchases seem to be :
1. It's brick's and mortar - I feel comfortable with pricing it and managing it.
2. I feel I am in total control of the investment - which for me is reassuring.
The downside of further BTL's at present:
1. The 8% SDLT payable - in London this is a significant amount.
2. Year end tax implications of buying further properties.
3. When the property is sold or passed onto my children, again there will be significant tax implications.
4. As I get older, will i be able to manage additional property maintenance, tenant issues etc...
The benefit's of investing in a pension\Stocks and Share's ISA.
1. Higher rate tax payer - therefore tax benefits.
2. A pension and Shares ISA is a hassle free investment - once the fund has been selected, I can pretty much forget about it.
3. With a Stocks and Share's ISA - all the gains will be tax free!
4. Outside of an ISA - I can use up my capital gains tax allowance to realize gains in any given year.
5. I can spread my risk by investing in a Global fund - could be wise with Brexit on the horizon.
The downside of investing in a pension \ Stocks and Share ISA.
1. The vast number of funds available makes it rather difficult to actually choose one!
2. The success or failure of my investment is in another persons hands.
3. We seem to be in a Bull market at the moment - don't want to be jumping in before a crash.
4. With current pension rules only 25% can be taken tax free - the rest will have be drawn down gently to help with tax.
If SDLT was not currently at 8% I think my preference would still be property. However, for now I think I shall see if the market goes from bull to bear and perhaps jump into a tracker fund or two.
Looking forward to views fro more experienced investors!
Thanks for replying TSR. I am also a higher rate taxpayer, which is why I stated to buy through a LTD company. This way further borrowing, up to the full purchase price can be made to repay the initial loan from me to the company and that repayment would not attract any tax
I like the list of for and against and to be honest I am still undecided as I also like the idea of diversifying, particularly with all the potential further changes should a Corbyn government get in.
Age is 59 in a few weeks so that's another consideration. I have no plans to slow down at the moment and still enjoy business challenges but have to be realistic about the future.
I was firmly of the opinion that BTL was much better than Pensions and ISA
But there has been a number of changes which has altered my own opinion
S24 Stamp Duty and Tighter Lending all cost more
Have you noticed how much Mortgage Valuations are and the arrangement fees are much higher too
The way I look at it now is its not ether a pension or BTL
Its both for me going forward
I use my self Employed earnings and I fund a pension via my Company
The Tax advantages of both should not be over looked
The money I fund my pension with the cash I would have used for deposits
If you remove the Capital Growth from the BTL workings Pension wins hands down
If your view is your going to have Capital Growth go for a BTL
My own feeling are we are not going to see a lot of growth
Pensions is a mind set and you have to understand what you are doing and why
Lots of new perks around pensions so sit down with an IFA
ISA too is handy again tax advantage
I like to feed both with a monthly sum so as the market goes up and down month costs can work in your favour
You can not time the market Its the time your in the market that counts
I set a bench mark of 8% and I have archived a lot more in the past 3yrs
If I can help just ask I am not a professional IFA but I have a good handle on Pensions good and bad points
Learn Change and Adapt ?????
All comments are for casual information purposes only. If you wish to rely on any advice I have given please ensure you obtain independent specialist advice from a third party. No liability is accepted for comments made.
The capital I have built into the figures is below inflation at 2% (36 years to double in value) so very conservative over a prolonged period. Pre S24 and the general landlord attack I would have just continued to expand in BTL but now I'm more cautious and, considering I already have a multi million pound portfolio, think it is time to diversify.
With my age at nearly 59 and other business interests pensions does seem the most logical area. I'm starting to research this more seriously now. Out of interest do you invest from your company via salary sacrifice or pay yourself and then invest out of earnings?
"You can not time the market Its the time your in the market that counts
I set a bench mark of 8% and I have archived a lot more in the past 3yrs"
The last three years have seen some rather spectacular gains on the global stock markets - if the so called "war chest" had been invested into any of the major tracker funds, gains of 40-50% could have been made.
By most accounts this is a 'bull' market, with the Footsie and Dow currently sitting at its third highest peak (when measured over the last 100 years) the other two rather ominously being the 1920's and the 2001 dotcom boom period.
With interest rates on savings being so poor and the Govt hell bent on going after the B2L market, I think many of may start to look at alternative forms of investment.
I agree it’s a very close call now between BTL and stocks and shares now
Ok guys, I'm going to come clean here and admit I can see no point in paying into a traditional and/or stocks & shares pension, and here's my reasoning behind it, which I'm more than happy to have proven wrong!
Let's just say I'm 45 and can get £5k per month from here on after taxes to make the maths easier.
I know how I can do that with BTL, and yes, I know I will be taxed on it. For BTL I'd look to be earning more per month so that the tax effect isn't too onerous. They would be unencumbered by retirement age (lets say 67 for arguments) sake.How much would I need to start paying in to whatever pensions would guarantee me that £5k per month?Assuming health etc. the BTLs can get me that £5K month in month out. How can a pension do the same?
to have a pension of 60k a year you would need a pension fund of around 1.2 million
That's a big ask at 45
But I have always said it doesn't have to be one or the other ??
You can have both
The first question I have to ask are you investing via a company or is the investment in your own name
Just a rough calculation to create a pension fund of 1.2m in 21 years would need a monthly payment of around £1800 at a growth rate of 8%
If you were doing this via personal pension it would cost you net £1080 a month so you would gain 40% on every payment from day one
If you are running a Company your company could fund £1800 tax free to you and Tax free for the company
All the funds would be ring-fenced from creditors and all uk Taxes
You can also take 25% tax free ie £300,000
You can also pass down the pension to a spouse keeping tax benefits and pensions can help with IHT planning
If you were paying net pension contributions it would cost you £272,160
so you would have turned 276k into 1.2m with the help of the tax man
You could also invest via a SASS and if you wanted to you could buy commercial property
Pensions are strong for the right investor
We have all see the changes in the PRS is it not wise to have a plan B with a pension to run along side your BTL business
you can dabble with both
The Life Time Allowance for a pension is £1,030,000. It is definitely not worth exceeding that.