Buy to let may not be the place for your money if you are looking at 5% plus returns on your cash.
Chancellor George Osborne?s much heralded pension and tax plans ‘ plus impending mortgage rate rises may be a game changer for property investors.
Although property values have increased in recent months, rising prices push down yields and many landlords looking for an exit strategy are trapped by capital gains tax and inheritance tax issues when they try to pass on their wealth to loved ones.
On the other hand slashing tax on passing on pension wealth combined with pension contribution top-up relief and easy, spend how you like access at 55 years old are attractive options.
Remember, investments grow tax free in a pension and stock market yields are averaging around 5% a year ‘ equivalent to the average for a buy to let without the hassle of managing and maintaining a property.
Full-time landlords will find investing in a pension poses a problem ‘ the maximum annual contribution is limited to £3,500 or the level of gross relevant earnings, which do not include rents.
However, part-time landlords with higher earnings can contribute more, with £8,000 cash representing £10,000 in savings after adding the top-up relief.
Once that cash is in a pension, choosing the right investments can pay significant returns.
For example, UNITE, the student accommodation giant, issued a corporate bond paying a fixed 6.125% interest tax-free.
An exit strategy worth considering is the Seed Enterprise Investment Scheme (SEIS).
This little-known HM Revenue & Customs (HMRC) approved investment offers significant tax breaks.
Landlords can wipe out a good proportion of income tax by matching their investment with tax paid.
For example, if you owe £20,000 tax, investing £40,000 gives a £20,000 tax reduction ‘ and it gets better.
If the investment comes from selling an investment property, 50% of the capital gains tax bill also disappears. If the investment succeeds, landlords make a tax-free profit after three years, and if not, they gain loss relief to offset against other income tax.
Diversification is the key to investing in uncertain times ‘ and the new pension rules and SEIS can offer significant tax breaks providing the Tories keep their tax promises.
… LandlordZONE.
Article courtesy of LandlordZONE””
