Pension or Investment property

thetyreman

As above folks i have a pension that i pay myself as i am self employed,and for the last 2 years it has been a disaster as regards a good return as everybodys has i assume,so my question is would i be better off putting my money into a investment property as in a appartment/house to rent out and geting a mortgage for it,(i know it isnt as easy as before to rent out such propertys but i an fairly sure i have a tennant,and for the times when i havnt i would be able to pay the mortgage myself as i wouldnt be makeing payments into a pension)I am also aware of thr tax relief that the pension generates but is it really worth the relief if the pension is doing nothing itself ??.
I think now is a good time to buy as the prices seem to have bottomed out,and the value is good out there...so in a nutshell i think the right property in the right place at the right price with the right tenent would be a better investment than a pension IMO///

WHAT YOUS THINK.....THANKS

ferga_com

Unless you're retiring shortly, I wouldn't be too concerned about pension fund performance over a two year period. Funds go down as well as up routinely. This is the nature of them. I can't comment on your particular fund as I don't know what sort of fund you're paying into.

In general, a pension is more tax efficient than an investment property as (a) you're getting tax relief on your contributions, (b) the pension fund itself is exempt from Capital Gains Tax and Income Tax, (c) you'll have a liability to tax on rental income from an investment property, and this is likely to increase - allowances cut in the last Budget and perhaps again, (d) you'll have a liability to CGT when you sell the property.

If you've located a property that you believe to be a good investment, you may be able to get the best of both worlds by getting your pension plan to buy the property which will allow you to avail of the tax exemptions.

thetyreman

Thanks for that F com,,could you explain how that idea of the pension plan buying a property would work,and how one would go about doing something like that,i obiously will be talking to my accountant about it but would like to know as much as i could about it first.......

thanks

ferga_com

Wherever your pension fund is at the moment, presumably there's a fund manager making the decisions as to what to buy and sell for the fund and when. You can do this yourself if you want, through a self-directed or self-administered pension plan.

A self-directed plan is still a pension plan in terms of the amounts you can contribute, when and how you can retire etc. But you can direct that it buys shares or property of your choosing.

There are rules. You cannot buy a property that you have anything to do with yourself. So no buying fom or renting to yourself or a family member. No buying a business premises that your own business will use etc. It must be an arms length investment.

A pension fund can borrow to buy property but typically the maximum would be around 70 - 75%. The loan must be on a repayment mortgage basis (no interest-only) and have a maximum term of 15 years. The balance of the deposit and all costs must come from the pension fund itself. You can transfer in other existing pension funds towards this if you wish.

Rental income is paid to your pension fund without any tax liability. You can decide to sell the property later and if you make a profit, there's no Capital Gains Tax. But you must remember that it's your pension fund that owns the property and not you, so access to the fund is only available when you retire and is subject to the same rules as any other pension policy.

Self-directed pensions are not for everyone. If you buy a property, your entire pension fund is tied up in one asset. A typical Managed Fund will hold hundreds of assets in various geographical regions and industry sectors around the world and so is far more diversified. You have to be comfortable with that degree of risk, although there's nothing to say that you can't buy a property and then invest in other funds later, if resources allow.

Regards, Liam

thetyreman

Thanks for that,its worth a look into.....