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Author Topic: Pensions  (Read 13680 times)

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Viral_Jim

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Re: Pensions
« Reply #75 on: 26 July 2018, 12:31:47 »

FWIW, my take on BTL property is it makes a good long term investment but doesn't fit the short-termist, model that some speculators had opted for up until recently.

Personally I aim to have a couple of properties at some point (depending on what value we sink into our current house) and I would view them as buying an annuity in the long term. Buying through a limited company that makes little or no money and get the mortgages paid off in c20-25yrs. At that point you have effectively "bought" an annuity, even handing the properties off to someone to fully manage you would still get solid returns compared to pretty much any other investment. Over that time horizon, the "buy in" costs become close to irrelevant and I wouldn't bother with an exit strategy really. Just hold them indefinitely.

All depends on mortgage rates obviously, but we haven't been building enough houses (pretty much) in my whole lifetime, so its a simple supply and demand issue in the medium term.
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LC0112G

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Re: Pensions
« Reply #76 on: 26 July 2018, 14:00:01 »

FWIW, my take on BTL property is it makes a good long term investment but doesn't fit the short-termist, model that some speculators had opted for up until recently.

Personally I aim to have a couple of properties at some point (depending on what value we sink into our current house) and I would view them as buying an annuity in the long term. Buying through a limited company that makes little or no money and get the mortgages paid off in c20-25yrs. At that point you have effectively "bought" an annuity, even handing the properties off to someone to fully manage you would still get solid returns compared to pretty much any other investment. Over that time horizon, the "buy in" costs become close to irrelevant and I wouldn't bother with an exit strategy really. Just hold them indefinitely.

All depends on mortgage rates obviously, but we haven't been building enough houses (pretty much) in my whole lifetime, so its a simple supply and demand issue in the medium term.

But, you've got 6% (Stamp Duty) buy in costs, plus 20% of gains (CGT) sell up costs. You've got to make up close to 30% extra over putting your money in stocks and shares, which historically have averaged 7%+ return year on year, and get tax free status via either ISA or Pension.

And if bought through a ltd company, how do you get any cash out into your pocket? Salary attracts income tax (20%/40%), eeNI (12%/2%) and erNI (13.8%), whilst dividends attract corporation tax (20%) and dividend tax (7.5%/32.5%). 

If you want to setup business as a landlord then fine go ahead. Just don't kid yourself that its a way to print money any more.
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Viral_Jim

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Re: Pensions
« Reply #77 on: 26 July 2018, 14:59:26 »

I assume the 7% return y.o.y. is reinvesting dividends plus capital growth? If so then surely property would outperform on capital growth plus rental returns? House price growth has been about 7% y.o.y. in my lifetime.

And why is stamp duty 6%? Is it not 3% <£125k 5% £125k-250k and 8%/13% above that?

As you'll see from my last post, I wouldn't be bothered about CGT as there's no intention to sell, cash out would probably be via pension contributions. Nor would I claim its a licence to print money. Rather, its one part (along with pension and LISA contributions) that we intend to use to make early retirement (or "retirement" as most on here would know it  :P) a reality.
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LC0112G

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Re: Pensions
« Reply #78 on: 26 July 2018, 15:24:10 »

I assume the 7% return y.o.y. is reinvesting dividends plus capital growth?

Yes

If so then surely

Don't call me Shirley  :)

Property would outperform on capital growth plus rental returns? House price growth has been about 7% y.o.y. in my lifetime.

Nett of tax? 7% HPI taxed at 6% on the way in and 20% on the way out = less than 5%.

And why is stamp duty 6%? Is it not 3% <£125k 5% £125k-250k and 8%/13% above that?

There has been an additional 3% Stamp duty for second/third/fourth homes since 2016
https://www.stampdutycalculator.org.uk/stamp-duty-second-homes.htm

As you'll see from my last post, I wouldn't be bothered about CGT as there's no intention to sell, cash out would probably be via pension contributions.

So you're putting a few £10K's 'rent' per year into a pension, over 10+ years, rather than putting £100K+ into the pension on day one? If you're expecting to get close to the LTA then that might work, but I doubt it. Would need very careful modelling.
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LC0112G

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Re: Pensions
« Reply #79 on: 26 July 2018, 15:44:47 »

Oh - I was wrong. CGT is 28% on residential property, not 20% - for personal owners and can apply to companies.

https://www.gov.uk/capital-gains-tax/rates
« Last Edit: 26 July 2018, 15:51:00 by LC0112G »
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2boxerdogs

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Re: Pensions
« Reply #80 on: 26 July 2018, 16:03:58 »

At the end of the day do what you feel right for you , we did very well out of our properties only starting with an £85,000 inheritance in 1986 sold our last two rentals last year for a very good profit so just have the one we are in which is almost sold & the one we should exchange on by Monday. Don't be taken in by facts & figures by " financial experts"as with anything plenty of con artists around.
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Viral_Jim

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Re: Pensions
« Reply #81 on: 26 July 2018, 16:09:20 »


If so then surely

Don't call me Shirley  :)


The old ones are still the best :P

So you're putting a few £10K's 'rent' per year into a pension, over 10+ years, rather than putting £100K+ into the pension on day one? If you're expecting to get close to the LTA then that might work, but I doubt it. Would need very careful modelling.

Not exactly. Starting with c £100k on day one (in a Ltd Company), I would buy and refurbish (probably most of the work paid for rather than done) a property to rent out.  Mortgage it once I have enough history behind me to get a B2L mortgage (probably 12 months). Then rinse and repeat. By my reckoning, the uplift in value from renovation plus 1yrs rent should free up about all of the money I put in. Allowing for a repeat performance. By the time retirement rolls around, say 25yrs from now, the £100k in a ftse tracker should be worth about £575k, as should each house I've renovated. IMV, about 4 is the right number, should give a monthly income of around £2400 pcm in today's money. Only at that point does any money come out of the company. Up until that point it just gets reinvested into the ltd co. (or more likely covers the corporation tax). 

So, overall not actually comparable as dumping £100k into a FTSE all share tracker is passive, this is active, but it reflects the options open to me, doesn't become a full time occupation and is actually something I quite enjoy. By my reckoning, starting with £100k today, I could buy an annuity of £24k in retirement (@60), or receive £29k from 4 houses, and then still have the houses left over. All for the cost of a little bit of effort in between.  8)

Plus, unlike an annuity, it would free us up for retirement in out mid 50's. I reckon that the private pension age will be well into the 60's by the time I get there.  :y

At the end of the day do what you feel right for you.

Sounds about right :)

Oh - I was wrong. CGT is 28% on residential property, not 20% - for personal owners and can apply to companies.

Genuinely curious as to how this works? I understand if you sell a company to another person then you can pay CGT, same as selling shares outside of an ISA wrapper, but in terms of the ongoing business, AFAIK its corporatiion tax only :/
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STEMO

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Re: Pensions
« Reply #82 on: 26 July 2018, 16:33:42 »

I don't understand all this annuity stuff but, according to the teachers pension website, wifey has already built up an annual pension of £19000+ and can take a lump sum of circa £50K.
By the time she is 67, it says she will have accrued an annual pension of over £65K with the same lump sum.
This is assuming her annual salary rises to £90K over the 20 years she has left. That is a conservative estimate, I think.
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Field Marshal Dr. Opti

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Re: Pensions
« Reply #83 on: 26 July 2018, 16:48:09 »

Hmmm. Jimmy.

You have far too much interest in pensions for a younger man. This is not a healthy state of affairs. I don't have one but I'll be fine. :y

Stop stressing over when you're old and senile, and enjoy yourself instead:  ;) ;)

https://www.youtube.com/watch?v=fW280u2pbIw
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2boxerdogs

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Re: Pensions
« Reply #84 on: 26 July 2018, 17:25:13 »

Hmmm. Jimmy.

You have far too much interest in pensions for a younger man. This is not a healthy state of affairs. I don't have one but I'll be fine. :y

Stop stressing over when you're old and senile, and enjoy yourself instead:  ;) ;)

https://www.youtube.com/watch?v=fW280u2pbIw


Never too early to start thinking about retirement & what lifestyle you would like , I can't imagine anything worse than having lots of time on your hands & not having the funds to enjoy it
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LC0112G

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Re: Pensions
« Reply #85 on: 26 July 2018, 17:27:13 »

Not exactly. Starting with c £100k on day one (in a Ltd Company), I would buy and refurbish (probably most of the work paid for rather than done) a property to rent out.  Mortgage it once I have enough history behind me to get a B2L mortgage (probably 12 months). Then rinse and repeat. By my reckoning, the uplift in value from renovation plus 1yrs rent should free up about all of the money I put in. Allowing for a repeat performance. By the time retirement rolls around, say 25yrs from now, the £100k in a ftse tracker should be worth about £575k, as should each house I've renovated. IMV, about 4 is the right number, should give a monthly income of around £2400 pcm in today's money. Only at that point does any money come out of the company. Up until that point it just gets reinvested into the ltd co. (or more likely covers the corporation tax). 

Not sure where the initial £100K in the Ltd comes from though. If it comes from you, then paying £100K into a pension (ignoring the fact you probably can't do that!) it immediately becomes £125K (for a 20% taxpayer) or £166K (for a 40% tax payer). 25 years @ 7% growth it becomes £678K(20%) or £900K(40%). £678K might get you £20-£27K income per year. £900K might get you £35-£40K income per year.

Or you invest the money in the ltd company, and buy a house using £100K. That's £94K on the house, and £6K gone in stamp duty. The house value increases by 7% yoy for 25 years, and ends up at £510K. The company sells the house and pays 20% corp tax on the gain, leaving it with £427K. It then dumps the £427K into your pension.

In the mean time the company has had 25 years worth of rental income. What yield (net) are you aiming at? After letting fees, voids, insurance, accountancy fees, auditors, maintenance costs etc? 5% gives you less than £5K p/a. If the company pays all that into your pension plan for 25 years, at 7% yoy growth, you get to £330K. Add the £427K from the sale and you're at £757K.

In order to buy a second £100K house, you're going to have to find another £100K from somewhere. If you mortgage the first one you're only likely to get a BTL mortgage at decent rates with a 75% or better LTV. If you've tarted up the first house, it may now be valued at (say) £100K, so you can borrow £75K. Add the 5K rent and you've got 80K (but £5K less in your pension). Still 20K to find somewhere. No good waiting for the first house to increase in value so you can borrow more, because the second house will also have gone up. The second house will also be less profitable because you've got the mortgage to service - if the net yield is still 5%, but the mortgage rate is 2.5%, then you'll only be making £2.5K p/a on it.

Can it be made to work - yes. Would I do it - no.

Plus, unlike an annuity, it would free us up for retirement in out mid 50's. I reckon that the private pension age will be well into the 60's by the time I get there.  :y

Govt have indicated they'll link minimum private pension age to state pension age minus 10. So if state pension age did go up to 70, then yes private pension age could go up to 60. Govt have committed to 10 years notice of any changes, but governments change and lie. You also don't need to buy an annuity - some drawdown schemes allow roughly twice the income the annuities provide, though with additional investment risk.

Oh - I was wrong. CGT is 28% on residential property, not 20% - for personal owners and can apply to companies.

Genuinely curious as to how this works? I understand if you sell a company to another person then you can pay CGT, same as selling shares outside of an ISA wrapper, but in terms of the ongoing business, AFAIK its corporatiion tax only :/

Not sure - it was something our accountant said. I think it refers to non ltd companies, partnerships and trusts.
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Field Marshal Dr. Opti

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Re: Pensions
« Reply #86 on: 26 July 2018, 17:52:44 »

Hmmm. Jimmy.

You have far too much interest in pensions for a younger man. This is not a healthy state of affairs. I don't have one but I'll be fine. :y

Stop stressing over when you're old and senile, and enjoy yourself instead:  ;) ;)

https://www.youtube.com/watch?v=fW280u2pbIw


Never too early to start thinking about retirement & what lifestyle you would like , I can't imagine anything worse than having lots of time on your hands & not having the funds to enjoy it

I suppose it depends if people are willing to sacrifice their younger more healthy self for the 'possibility' they may live to a ripe old age and can afford the best care home. :) 
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LC0112G

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Re: Pensions
« Reply #87 on: 26 July 2018, 18:09:06 »

I don't understand all this annuity stuff but, according to the teachers pension website, wifey has already built up an annual pension of £19000+ and can take a lump sum of circa £50K.
By the time she is 67, it says she will have accrued an annual pension of over £65K with the same lump sum.
This is assuming her annual salary rises to £90K over the 20 years she has left. That is a conservative estimate, I think.

Final Salary / Average Salary / Defined Benefit schemes etc don't use annuities. The employer is committed to paying whatever it is they have promised in the contract. How they fund that is up to them, but there is (virtually) zero risk to the pensioner. With almost all the public sector schemes there is no 'pot' of money. It's already been pissed up the wall. The Govt will just tax future taxpayers more to pay whatever is required. So no need for Mrs Stemo to worry about annuities - she will get whatever the Govt has promised her.

Money Purchase / Defined Contribution / Private Pension schemes like what most mere mortals now have do pay money into a pot reserved for the employee. That pot may grow (or fall) depending what it's invested in. Hopefully it'll grow and reach a large value. Then when you retire you can 'cash in' your pot, take 25% tax free from it, and buy an annuity with the remaining 75%. When buying an annuity, in exchange for your money the annuity company promises to pay you an amount for however long you live, be that 1 day or 50+ years.

The amount they pay depends on your age, postcode, married/single, lifestyle, any illnesses, index linking and a gazillion other things. However, the annuity rates at the moment are pitifull - 2.5% ish for 55 year old, 3% escalation 50% joint life. So in exchange for a pot of (say) £100K they'll promise to pay you £2500 per year, increasing by 3% per year, and if you die they'll pay your partner £1250 till she dies. If you live to be 100 it'll be a good deal. If you and your wife die the day after you took out the annuity that's it - all the money is gone. The older you get, the better the annuity rates get. A 75 year old can get 5% on the same basis as the 55 year old above - statistically they won't live as long.  Once the annuity is purchased and in payment, the contract is cast in stone - they must pay you. Neither you nor they can modify, revoke or surrender it. You no longer HAVE to buy an annuity though - other Drawdown options are available.

So just relax. Mrs Stem is in one of the best pension schemes there is, well off pension wise, and will be well minted before she retires. Just make sure she doesn't trade in her old 'Omega' for a newer model  ::)
« Last Edit: 26 July 2018, 18:11:19 by LC0112G »
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STEMO

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Re: Pensions
« Reply #88 on: 26 July 2018, 18:14:25 »

'Omega'. Whadayermean?

As if I didn't fickin know  ;D
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STEMO

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Re: Pensions
« Reply #89 on: 26 July 2018, 18:18:12 »

But...and it's a great big but....who knows what could happen between 'now' and 'then'.
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