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I currently have a small portfolio in the south east which is leveraged around 70% LTV, earn around 40k in full time employment and own the portfolio in my own name. Ideally I would like to get the portfolio down to 65% LTV but am considering other options as I have a number of 5 year fixed mortgages.
If I pay into an IFISA paying in excess of 6% per annum, this will get me leverage of at least 2 x what I pay down debt on my mortgages (up to a maximum of £20,000 in all ISA's in this tax year).
If I pay into a stocks and shares ISA, it is possible to get a fund that yields around 4%( I understand that this is not guaranteed), this will cover the mortgage and any fund gains are a bonus, although they could also make a loss, so more risky but also no cap on potential gains.
If I pay more into my pension, I will achieve tax relief but my money will be tied up for a minimum of 15 years. This seems less appealing at present. My current personal contribution is 6% and I have already changed the fund from the default (low risk) option.
If there are other options or if I misunderstood anything in the above, please share or pm me
I share your pain Mark
I have small portfolio too and similar issues
not big enough to get incorporation relief or CGT relief
was considering LLP or partnership route
meanwhile paying down debt in the hope that section 24 is reversed or that some kind of new relief is introduced - no guarantee of that though!
I'm in a similar position with leveraged SE portfolio and full time employment. Sec 24's tax on turnover is taking me into the 45% tax rate and withdrawal of my personal allowance.
I've stopped expanding due to Sec 24 and Stamp Duty increasing, so the properties now provide a reasonable return which is not now being reinvested in growth, but instead paying down existing mortgage debt as primary/second charge mortgages clear their redemption periods.
In respect of my full time employment, I now pay 16% into my final salary pension and an addition 4% salary into a final salary top up. All other allowable employment income is then invested into the work voluntary AVC's which I would look to transfer into a SIPP at 55, when I'd also take my work pension. My employer, (as any would) has to pay me minimum wage, but outside of that all salary is now invested into pension investment to get the maximum tax relief.
s24 is a real pain. Incorporation I suspect does not work for you as you are not already in the higher tax brackets from your salary. So some (assuming not all or there is no s24 issue) of your property profits are taxed at 20% and the excess at 40%. but with s24 the 40% could well be an effective rate of 50%+ (depending on leverage and interest rates).
Since you are comfortable with residential investment risk I suspect a stocks and shares ISA is not for you. It's a different risk profile and with risk there is reward in broadly equal measure.
Other than pension the rest of the options you listed are about investing on an after tax basis so the return is based on the net. Pensions are invested gross (so should grow more) but are taxed when you extract the funds which cannot be until you are at least 55 (and I would suggest you don't rush to extract either then without advice).
I think there is an option for you to put the excess income (taxed at 40%+) into a pension (i know it is locked away but it means you are using the tax man's money for yourself). The rest of the income (first slice) which is taxed at 20% could be used for an IFISA or to repay debt. Personally I would do the IFISA as this way means that you can then use the additional income (ie the tax free income) to repay your mortgage. This will mean that your net debt position (mortgage less ISA) will fall quicker. This assumes of course you do not need the money to live on or the pension money as a safety net.
Once the debt is low (on average per property) then a range of options may become available to circumvent s24.
Give me a shout if you wish to discuss in more detail.
Chartered Accountant, Tax Advisor and Mortgage broker
(and BTL portfolio owner)
Not an easy one
s24 is so unfair a great number of us have planned and the govt has stabbed us in the back a Tory Government too who would have believed it
my own view of all else fails stick it into a pension
I think it’s the only legal cheep way of getting tax back
I know it’s 15 years for you
but look at the benefits of pension
there are lots of plus points
read a book called pension magic
the key I found was not to think of it as a pension
think of it as your own offshore company
which you can move highly taxed cash into from your uk investments
I don’t think there has ever been a better time to invest in pensions
my second opinion is use ISA you have said 4% growth but it’s worth a lot more too you being a higher rate tax payer
there is more than one way of getting the results you seek
other than property investment
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.
Another big benefit from an ISA is ready access to cash in an emergency - though I assume you keep say £5k to £10k in liquid form for that anyway.
My wife and i have invested in Stocks and Shares ISA.s since their inception (as PEP,s) in about 1987 and their combined value is today over one million pounds.
It depends how much debt you have of course but i would regard my ISA as leveraged if i had not reduced my debt when able to in just the same way i would look upon leveraged BTL
As regards to pensions i have DL to thank for recommending the absolutely brilliant bookPensions Magic.,I had not appretiated the rule changes made over the last few years and as directors of property companies we now contribute 40k pa for each director directly in to pensions as an expense..The pension pots are free of IHT if you die before age 75 and your beneficiarys will only pay income tax as and when they decide to draw the funds down
Sorry my post was unfinished -the beneficiarys are only liable for income tax if you die after 75 years of age
Glad it helped you with your plans
I have met a number of pep and isa millionaires over the years
all tax free how good is that
I follow my own advice investing cash in other areas now
a lot of folk look at the old pension days and it clouds there judgement because they don’t take the time to look at the changes
And the irony is i believe it was George Osbornes reforms that changed the rules regarding the purchase of annuities - nobody is all bad then !
Really strange you said that
I only said the same thing to my wife today
one door closes another opens