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  • Buy-to-Let

    My conclusion: Pension vs. BTL? BTL wins if?



    Most who read my blogs on this topic over the years

    I have come to this conclusion BTL wins over pension If you factor in Capital Growth ?

    and the other advantage of BTL is you can add value and purchase Below value property

    If you remove the two factor above Pensions are a  better investment

    The costs of setting up a property deal should not be over looked and the time you spend on managing and running the project

    Pensions have low entrance costs and are Tax Deductible

    I strongly believe there is room for both Pensions and BTL in the post Osborne Law times ahead

    The major factor I see is If your borrowing money to invest in BTL I think most would chose a Ltd Co to invest in

    This brings more costs and it can bring more advantages

    In my own Business I am beginning to see opportunity in BTL again using Company Directors Mortgages to raise deposits would work well for me

    The strategy I out lined yesterday is my own chosen way to do this

    So there you have my view

    I have one nagging doubt and its this ...  Will future Govts leave our sector alone from more taxation ??

    This is the million pound question.

    I don't think any Landlord can answer this question

    I don't think any of us saw S24 and that has to be a worry.

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    Learn Change and Adapt ?????

    It doesn't matter which party gets in. It doesn't matter how much money the government receives, it is never enough. Upstanding, law-abiding citizens are an easy target. The government's and councils' view is that the general public is a bottomless pit of money from which to draw.

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    I would agree with you that’s why I have said Wil they tax us more ?if that were the case BTL would not be a wise investment going forward

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    Learn Change and Adapt ?????


    I have both.

    Would I trade a pension which I can only begin to claim at 55 for even a SINGLE property - NO.

    Am I glad I have a pension and property - YES

    Do I intend to buy further BTL's - YES.

    Do I intend to increase my pension contributions - NO

    Today, a child has been born in the UK and in 30 years I am confident he/she will become a property millionaire. If that child can make it work...

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    I've just done a spreadsheet comparison of BTL and pensions over a 10 year period and with time BTL certainly outstrips pensions.

    For the comparison I have used £32k invested in pension, which with government top-up at basic rate goes to £40k.

    BTL has had £32k invested as deposit and using a mortgage at 75% LTV.  I haven't allowed buying costs for this simple comparison but nor have I allowe for buying BMY or adding value.  Rental yield is 6% and voids and maintenance is 20% of rent.

    To keep the comparison as close as possible I have used a pension drawdown to equal the net profit after tax on BTL.  BTL Ihave assumed 50% tax to allow for company and dividend tax and Pension is 25% tax free and 40% on the balance.

    As you can see from the end balance and equity figures BTL Is almost twice as profitable as Pensions.  This is only allowing 2% pa CG on property and 6% yield on pensions.  The longer you extend the timeframe the greater the difference.  Damn this is making me totally rethink now lol.  I still think it good to have a certain amount of diversity though inspite of the obvious gain with BTL.




    BTL



    YearValue +2%MortgageRentMortgage @3.5%TaxNet ProfitEquity

    £128,000£96,000£6,144£3,360.00£1,392£1,392£32,000
    1£130,560£96,000£6,267£3,360.00£1,453£1,453£34,560
    2£133,171£96,000£6,392£3,360.00£1,516£1,516£37,171
    3£135,835£96,000£6,520£3,360.00£1,580£1,580£39,835
    4£138,551£96,000£6,650£3,360.00£1,645£1,645£42,551
    5£141,322£96,000£6,783£3,360.00£1,712£1,712£45,322
    6£144,149£96,000£6,919£3,360.00£1,780£1,780£48,149
    7£147,032£96,000£7,058£3,360.00£1,849£1,849£51,032
    8£149,972£96,000£7,199£3,360.00£1,919£1,919£53,972
    9£152,972£96,000£7,343£3,360.00£1,991£1,991£56,972
    10£156,031£96,000£7,490£3,360.00£2,065£2,065£60,031



















    Pensions



    InvestYear
    DrawdownTaxNetBalance
    £40,000
    £40,000£1,991£597£1,393£38,009

    1£40,290£2,078£624£1,455£38,212

    2£40,504£2,168£650£1,518£38,336

    3£40,636£2,259£678£1,582£38,377

    4£40,680£2,353£706£1,647£38,327

    5£40,627£2,448£734£1,713£38,179

    6£40,469£2,545£763£1,781£37,925

    7£40,200£2,644£793£1,851£37,556

    8£39,810£2,745£823£1,921£37,065

    9£39,289£2,848£854£1,993£36,441

    10£38,628£2,953£886£2,067£35,675
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    Hi Paul

    I can see where you are coming from on this

    There are such a lot of If,s on this subject

    and its not an easy call

    such a lot can happen more taxation more regulation ect ect

    I think its wise to have both

    BTL is a good investment But I just don't trust the Govt in the future not to kick us in the Teeth again

    Our reputation in the eyes of the public is not good and we are such an easy target as has been proved

    I would imagine if you were buying a property as illustrated you would do it via a company

    If you are and you were a higher rate Tax payer how would you extract the profits

    Dividends and Salary are highly taxed Now

    I find this such a close call and not easy one to call as I have said

     


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    Learn Change and Adapt ?????


    Hi DL

    I really enjoy your and JC's threads as they make me think.

    In the spreadsheet example I used a 50% tax rate as I wanted to allow for buying through a company and the costs of both corporation tax and dividend tax.  I still love the idea of using the 25% pension drawdown to help fund deposits.

    I'm in a fortunate position as I don't really need to buy anymore to live well for the rest of my life but I still enjoy the game and the  of finding solutions to problems.

    I'n base in the South East which means yields are generally lower but CG higher than the North but I don't limit myself by location.  In fact I'm in Newcastle tomorrow trying to finalize sales on 2 commercial properties and the purchase of another.

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    Thanks for the compliment

    I think we are in simier situation

    I have a Large BTL Business and to be honest its my Life Blood I just love making money

    with the s24 I have been effected and its been a challenge but I have found my own way around It ?

    The company thing has been a learning curve but I have enjoyed it and Pensions now play a part in my plans

    I hope you have a good trip up to the NE It may have been good to have met up for a coffee

    I like networking and meeting other Landlords

    Have a safe trip

    Regards DL


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    Learn Change and Adapt ?????


    I get up to Newcastle on business every couple of months.  Tomorrow I'm really stuck in back to back meetings to get everything organised and back on the same day.  Be nice to meet up for a coffee when I have a little more time though.  If I can work out how to do it I'll send you a private message with my contact details as don't like them on open forum.

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    I look forward to a Chat Paul

    enjoy your trip north

    all the best

    DL

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    Learn Change and Adapt ?????

    Hello Paul - interesting comparison.

    Further clarification with numbers above.

    Gross  Rental @ 516 pcm   or £650.

    And according to above on any drawdown amount you pay 40% tax .

    So just defered till older and affects you most at that age. ?? And if 6% assumptions wrong my slightest amount the drawdown will be adversely affected eating into capital.

    So if was 3% growth due market conditions at time.

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    Coming soon Investorsk8.com

    Wisdom - an integration of knowledge, experience, and deep understanding that incorporates tolerance for the uncertainties of life as well as its ups and downs.