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. 
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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Topic: Pensions (Read 15969 times)