I know there’s a few other landlords on here.

Promotion at work means I am upping my pension contributions. Currently my pension returns have been good, up until last year when I lost a good bit.

I’ve also a small buy to let, currently returning about 6% and I’m managing to pay down capital on that mortgage or my personal one modestly. Personal mortgage is marginally higher interest than the BTL.

With the changes in tax on BTL I’m pondering my strategy for all this.

Thoughts?

If your promotion pushes you into the 40% bracket then BTL gets less attractive and regular pension more attractive but I think a mix of both is sensible either way. My BTL is at the lower end of the market and the recant tax changes have actually been favourable so its not all doom and gloom for BTL. I do like the control that comes with BTL and personally I find bricks and mortar way more interesting and tangible than shares and funds. I can also spend the income from it if I want which is handy a self employed person with a very variable income. My last chunk of spare money went into the pension, the chunk before that into BTL. I’m happy with both so far and will continue to put more into both. I wouldn’t over pay on the mortgage with rates as they are, that money can get better returns by being invested.

I’m retired and have a couple of occupational pensions and a property which we rent out (not BTL). My wife and I also have a share ISA each. If I were to have my time again I wouldn’t bother contributing to a company pension scheme. I would just put the contributions into an ISA and buy a diverse portfolio of high yield shares or investment trusts and live off the income accrued.

Maybe not as high a yield but absolutely no hassle and full access to the capital at any time if your circumstances or choices change. I think our ISAs would easily top £1 million now with re-invested dividends over our working lifetimes when we didn’t need the income.

If you make enough on the BTL I’d let it rumble along. At least you can sell it in the future and get a lump sum back when you no longer work/kids need financial help or just get an income from it. Property is a long term plan for me and a bit of diversity in future plans can only be a good thing. Who knows what is going to happen in the future.

Another question.

Next year sees 20% credit of mortgage payments towards tax bill.
Remember my BTL is lower interest rate (1.79% Vs 2.29% on residential).

With that in mind, in thinking I would be better to max out my BTL and downplay my own residential mortgage, as it will reduce tax and interest costs…?

Granted it’s their job, but a lot of investment sites are showing that the stockmarket (low cost funds) will likely produce more income than a BTL over 10 or more years. Have you maxed out your S&S isa yet?

Have you maxed out your S&S isa yet?

I’m not that wedged….!
But I perhaps should look.

Wish I knew what the stock market was going to do in 10 years time, it’s all guesswork. Sorry Matt different situation to you so no idea.

In my opinion property, especially a single property, is a poor investment. The returns may seem attractive but it’s a single asset that isn’t particularly liquid. The upshot of that is that when you come to sell, because you need some money, you’ll have to sell the asset in it’s entirety rather than just the portion that you need and all of that will taxed in a single year rather than spreading it around. I honestly think that a balanced portfolio of stocks and shares (which can include property funds) offers a far safer and more flexible investment.

That may be, the place was bought as a fall back when I had a job with tied staff accommodation.
I now have it, house prices in Perthshire are still not strong enough to sell without losing capital.
Therefore better to double down and make a success of it, and hope house prices recover.

Would you actually lose capital? The house prices may not have risen but remember that your tenants are the ones repaying the capital not you so your return is really the comparison between the equity that you currently have and the capital that you (not the tenants) have contributed.

Therefore better to double down and make a success of it, and hope house prices recover.

Doubling down on a loss seems like a bad idea to me. Increasing the amount you pay on the mortgage doesn’t actually improve your return. It might resolve a negative equity situation but unless you are selling, who cares.

Would you actually lose capital?

The issue may be actually finding a buyer.
Currently we would possibly lose £3-10k, plus selling costs of home pack, marketing and legal fees.
It may also lose me a good tenant.

Increasing the amount you pay on the mortgage doesn’t actually improve your return.

A good point. But can you explain it to my wife…!

Think about the end game too – CGT will be payable on any profit (- whatever credit for letting it at the time). It’s not easy.
I’ve just sold a BTL and am in the process of buying a Holiday Let. Part of the reasoning is that you can still offset mortgage payments against any gains to reduce tax. It’s all a bit of a gamble though.

CGT will be payable on any profit

The moment I’m into CGT I’m a happy bunny and selling.

I’m currently in the process of selling the house we rent out (here if anyone wants to buy it – https://www.rightmove.co.uk/property-for-sale/property-80895686.html )

I don’t personally think btl is a great investment any more but for different reasons – every year a new tax/cost is put onto landlords – extra stamp duty, additional Mortgage rules, no letting fees, no tenancy end dates and the 20% tax thing – and given that direction, I think more will come until it isn’t profitable (landlords have little political rent compared to generation rent). I’m not against those changes, but I don’t think its a great idea to be in business when they’re in play.

Btl interest rates are typically higher than residential, and remember to include the £1k/year fees for getting a mortgage (typically adds 1% to the headline rate), so if you’re keeping it, pay that mortgage before your residential one is how the maths worked for me (the 20% back wasn’t enough to swing the scales).

Money paid into your pension has up to 41% tax back (due to Nat ins) and can have other benefits too (keeping you eligible for child tax breaks etc), so my recommendation (assuming you’re not hitting pension limits) would be to bump your salary into there first. I’ve been pushing all my pay rises into pension for a while and now have a healthy amount (>20%) going in each month

I’m not a pensions expert by any means but I reiterate my earlier point about an ISA over a pension. Yes, you get tax relief going in but you will also pay tax on that pension when the time comes to start drawing on it, assuming obviously your income is over the basic tax threshold. What the government gives with one hand it takes away with another. Try cashing in part of that pension pot as well when you want £10K for something important.

With an income producing S&S ISA there is no income tax and no CGT if you want to sell some shares for the Porsche you’ve always promised yourself. There’s also no-one dictating to you that you buy an annuity or some such other bollocks. It’s your money and you are in total control.

You do pay some tax coming out (although not on the first couple of grand as it’s below the threshold), but you don’t pay any national insurance, and you might be on a lower rate of tax (20% is probably the most, vs 40 to 60 when you’re earning), so you get a boost there. The first 25% can also be withdrawn tax free, so you could be up a significant amount overall

You’re right about the flexibility, but with that comes some risk – isas can be stripped come bankruptcy, but pensions are protected

There are at least two other advantages with managing your own pension pot through an ISA as well. If you change jobs (and who doesn’t these days?) you may be able to transfer your work pension pot but you usually take a hit on that. Alternatively you could also end up with two or more smaller (usually frozen at some point in time) pension pots. With an ISA you get no such problems, it just continues to grow with the contributions from your new job.

The second advantage with an ISA is you can choose to retire when you like. If your self-managed ISA pension pot has reached a certain capital level and will give you the income you need then Bon Voyage!

If you change jobs (and who doesn’t these days?) you may be able to transfer your work pension pot but you usually take a hit on that

That may have been true once (and may still be for a DB pension) but for a modern DC pension it isn’t. I’ve transferred quite a few pension pots around having changed jobs and not been subject to any charges.

I’m not saying that ISAs are a bad idea but generally a pension is better for someone who is employed especially once you add employers contributions.

Company pays into my pension, something I’ve requested of last three employers to keep it all in one place.

I’ve crunched some figures last night.

Daftly, I’m better upping the BTL LTV on account of tax credit, then paying down my personal residential mortgage by that amount.

I’ve upped pension.

I’m looking at ISAs this weekend – any suggestions of where to start?

If it’s stocks and shares your after then a low cost tracker would likely be the best starting point. E.g Vanguard or similar.

+1 for low cost funds. Vanguard and Fundsmith are quite good. You can buy them direct or through a third party. Fundsmith has done very well recently (although past performance is no guarantee and all that)

At risk of prolonging this for a few pages…

house prices may not have risen but remember that your tenants are the ones repaying the capital

…and also by taking the property off the market you’ve helped keep prices high, and make it less likely they’ll ever be able to buy and accumulate their own wealth. All helping create a haves and have nots nation.

I can see that most folk would rather be on the ‘haves’ side of the fence, and ‘m not suggesting there’s anything much the OP or any other individual can do about this situation. But I thought I’d express some disapproval of BTL, and that anything govt does to make it pay less compared to investments which actually add value is a good thing.

and also by taking the property off the market you’ve helped keep prices high, and make it less likely they’ll ever be able to buy and accumulate their own wealth.

My tenants were offered the property two weeks ago, with a gifted deposit from me for the costs I would incur on open market. This would mean a 95% LTV for them, both in permanent employment and earning enough. Thier reason for turning me down is they would want to redecorate and that next door has a cat…

Another question – pension is a stakeholder.
Where is best place to research Standard Life funds, with an eye on which ones for the future…?