Sell flat or keep for pension

[tinselvestsparklepants]

I own a flat that I bought a few years ago (to live in when working elsewhere) which is now rented out. I get approx £6k per year profit from this flat. My main home is mortgaged and if I were to sell the flat I could pay off the mortgage outright. However I can afford to pay the mortgage and I'm currently 2 years into a 5 year fixed term of 1.4%. If I sold the flat and paid off the mortgage I'd probably have about £30k profit.

I was going to keep the flat as a pension - I don't have a great pension as I was freelance for many years. However I should be OK now as I have other investments and now have proper pension. Just trying to work out if I should sell the flat now or keep hold of it. The profit seems quite low for the work, but would this be a mistake? I'm leaning towards selling it before the EPC changes come in, paying off my mortgage and investing the rest - am I mad to chuck away potential pension income even if it is relatively small? I'm late 40s.

If you do decide to sell the flat I would stick the money into a savings account and pay off your mortgage once your current rate expires. You will easily earn 4-5% at the moment.

Dont forget you will need to pay CGT on the profit from the flat.

I don’t see it as chucking pension income away as you can still use the money to invest in a pension (and take advantage of tax relief), unless you’ve already used all your allowance.

Calculate your actual clear profit annually, after deducting all costs and expenses - including the mortgage payments on your house; cost of managing the buy-to-let flat, outgoings such as insurance, yearly gas/electric safety checks, upkeep; and the projected cost of any required improvements in the pipeline such as EPC, tax.

Next, calculate the likely surplus from a sale, after paying off your mortgage and all associated expenses (you have estimated this at £30K). Work out much of this could be invested into a pension, depending on your income - (could you invest all of it over one or two years?), Add on the tax relief to the calculations.

Work out the return you would need to achieve on the pension to match the buy-to-let profit income. If it doesn't seem likely it will match it - is the difference worth accepting for the greater flexibility, security and liquidity of a pension pot, as well as the freedom from the risk of increasing regulation and uncertainty of the buy to let market?
If you decide not to sell at this stage, repeat the calculations again, once your fixed rate deal on the mortgage ends in 3 years time.

The above post sounds very sensible. I probably would keep the flat at least until closer to the fixed rate ends. You’ll gain more capital. c

Could it increase in value over time? And if you can afford to keep paying your mortgage atm then it seems like you don’t have to make any rash decisions just now.

Well done on being in such a good place!