53M with BTL and no real pension - need blunt advice

[cantkeepdying]

Dear All
I have a Heathrow based BTL, currently worth about £450K with £110k mortgage on it (monthly interest payment £420). It currently generates an £18K gross rent per annum. In the next year it will need a refurbish though.

My work salary is around £49.5K and have a bit in ISA but a tiny pension (less than £15K).

My conundrum is whether to sell it, for I lived in the BTL for about 10 Years and according to my calculations I would pay around £20K in taxes and after paying off the mortgage would have about £320K left for simplicity and (taking into account solicitor and EA fees and anything else as fixed cost).

I can invest £20K in this year's and next year's years ISA (£40k) and carry forward pension rules apply (I think I can additionally contribute another £180K into it) and remaining amount in an GIA, or carry on as before as wife trusts only property and is terrified of indexes going down as well as up, whilst I am comfortable with it.

Final note, I do have another property with a mortgage of £255K but expect to reduce by £100K to £150K in next few years (due to wife working and saving also - though she doesn't have a pension and prefers BTL despite my protections), which will become our main residence.

All opinions welcome and I'm sure helpful to many others lurking but too afraid to ask.

Why did Reddit send you to mumsnet? Try a financial advisor.

Why would anyone be afraid to ask?

my recommendation is engage a financial advisor.

May be I am finding Mumsnet responses more helpful in the main

You've had two responses - both suggesting a financial advisor. No one on MN is going to do unpaid donkey work for you.

you just have

Ok.

So most of the point of a pension is that it is tax free so you save on the tax.

In terms of assets and what you already have:

Presumably you are eligible for and hope to get state pension. You can check how much this is at

www.gov.uk/check-state-pension

You have effectively no other pension.

Your wife also works but doesn't have a private pension - again she should check what her entitlement is to state pension.

Basic (full) state pension is currently 169 per week. That's 17,576 per year if both of you get full state pension.

You've got equity of an unknown amount in your main house and roughly 320k in your BTL.

On average over the long run equities make about 6% a year. House prices in the U.K. are much more patchy - the north has had much lower house price rises but London has had quite high.

You've probably had similar returns on house prices in London to what you would get in stocks and shares to be honest, and it's paying you a revenue of 18k a year.

I would hold on to it. You'll pay tax when you sell it but you are doing better than most equity return rates.

This is on the assumption that you will either fully own your main home when you retire or will downsize/move somewhere cheaper so you do.

thanks @Octavia64
I checked and I already qualify for a full state pension and though wife needs a few more years work before she does.
The £18K is minus the mortgage payments of interest which annually total v just under £5K , so my real take home before capital gains tax is £13K.

You can’t pay £180k into a pension, you don’t have sufficient pensionable earnings (employment income, self less-employed income, royalty income).
You’re getting a 4% return on the investment from the rent plus capital growth, I guess selling it depends on whether you can beat this with investments.
As others have said, you probably need to speak to a financial advisor.

thanks @NorthernDuck I thought taking into account 3 year allowance rule + next years in a few months - it would add up to £180K

Using prior year allowances only applies to the extent you have sufficient relevant earnings in the year in which you make the pension contributions.

Regarding the rental income, what's the real net amount after mortgage, tax, annual maintenance costs, sink fund?

You say the property needs refurbishment soon. How much will that cost?

£13K but refurbishment I have allowed for £5K on a very conservative side

Full State Pension will be around £12k pa from April which pretty much means any other pension income will be taxable. If you still have your BTLs you may end up paying higher rate taxpayer in retirement.
Pensions will be part of your estate from 2027 so will have lost a major tax advantage. I would look into more tax efficient savings like ISAs.

What you don’t want is ending up getting 20% tax relief on the way in and paying 40% tax on the way out.

£180k is the maximum you can pay in, the maximum you can get tax relief on is your relevant UK earnings that you have paid income tax on: https://www.gov.uk/hmrc-internal-manuals/pensions-tax-manual/ptm044100

you can’t claim income tax relief when you haven’t paid the income tax in the first place.

Id honestly see an Ifa, get them to calculate the tax liabilities if you sell and the likely return on the investment in both scenarios.

@messybutfun sincere thanks. I still think a lot of people of have the word BTL linked to 'Ultra safe long terms returns with capital growth' without taking into account the law changes and impending changes, and its heyday in my opinion was a few decades ago and those that made it doing it (well done to them) remind everyone else. Currently my wife falls in the BTL camp, as it's tangible and not appearing to go up and down like a global index fund.