Pension and buy-to-let property

[BritAirwaysgirl]

I am a 58 year old female and am thinking of taking my 25% tax-free lump sum plus some savings and investing in a one-bedroom flat (£130k) as a rental income. No mortgage is required. I own my own home outright. One of the reasons is to potentially cut my full-time hours down to part-time and help with my grandchild, as I will have the rental income to supplement my earnings. I am aware CGT will be payable on the flat if sold. Any advice or thoughts?

The economics of BTL are looking increasingly Shakey, flats ditto and of course there are all manner of issues associated with renting out flats, in particular does the lease allow it.

Also of course as its your one BTL, what happens if it all goes wrong?

Just easier to invest it in a nice, safe ETF or savings account.

There's the extra stamp duty, all the regulatory requirements, service charges, agent charges, list is endless...

Have a look at the Renter's Reform Bill coming through and see what you think about being able to get your flat back via courts only.

I agree that investing in fund/ETF sounds a far easier return on investment than rental property.

I work part time and have rental income to top up my earnings. Don’t forget to factor in the stamp duty on your purchase, it’ll be £6,600 on a property price of £130k.

How much rental income would you get after tax?

If I wanted to take TFC now in case the labour government remove it and only had £130k to take, the most simple way would be to put £20k in a tax free isa this year, another £20k in next tax year and get £50k max holdings in premium bonds. This would generate a nice tax free sum each month without the hassle of being a landlord.

Have you not read about all the increased taxes, costs and responsibilities on landlords? Wouldn’t go there with a barge pole.

would the location work as a holiday let…I have one and it makes more money than my BTL (though my tennant is longstanding so it is well below current market value). I work PT too.
it is more work than a normal tennant but I enjoy it and you can set a minimum stay to manage the washing cleaning if you want.

BTL is getting harder and harder for small landlords. There is a ton of regulation, many tax breaks have gone and it is about to get a lot harder to increase rent or end tenancies. If you were at the start of your working life and thinking about gaining from the property value increasing over time, and you had the energy to deal with the admin and hassle it might be worth it. Unless you absolutely crack it and get a place at a good rate, in excellent condition with excellent tenants, as a retirement venture you may find it to be hard work and not great reward. Run the numbers on the purchase costs, tax and (as a ballpark pragmatic figure) assume that 25 - 35% of rental income you should set aside to cover repair costs and empty periods/rent default, another10% to an agent if you take one - would that still make financial sense to you?

I wouldn't do this. I would do one of the following:

• leave the money in your pension to grow but start to take an income from it, you can still work part time whilst doing this.
• Take the tax free cash and invest it in S&S ISA's and/or a GIA to provide an income to enable you to work part time.

Either of these is less hassle and probably a better financial investment.

I am self employed and work for several landlords. They are all, without exception, starting to sell up and exit the sector. The yields are getting smaller and smaller and the Renters Rights Bill is only going to make it even harder to make a profit.

I often see it said on mumsnet that landlords are greedy and raking in profit as they only have the mortgage to pay and everything on top of that is profit. This is laughable as there are so many other expenses. Tenants never look after properties as homeowners would so factor in the cost of a new kitchen every c. 15 years, new bathroom every c. 10 years, full redecoration and new flooring every c. 5 years, replacement appliances every c. 5 years plus PAT testing said appliances every year, gas check every year, fire risk assessment every year, legionella risk assessment every year, electrical inspection every 5 years, replacement smoke, heat and carbon monoxide detectors every 10 years, general maintenance and upkeep ongoing,10% commission to an agency annually plus re-letting fees at every change of tenant (unless you self manage but then consider taking phone calls in the middle of the night when they've locked themselves out or the toilet is blocked...) inventory fees at every change of tenant, licensing fees every 5 years if in a licensing area, void periods between tenancies, tax on rental income at your marginal rate, increased SDLT on purchase, no CGT allowance on disposal....I'm sure there's plenty of things I've forgotten too.

Don't do it.

I'm a LL for 25+ years and have been on a really steep learning curve recently. An elderly tenant died in one of my properties. It's looking like it could take me a year to legally recover possession of the house from a dead person and that I'll have to go to court to do so. This is because there seems to be no next of kin that can be found.

Sorry can I just ask where you are in UK? My uncle had this and he needed to apply to public trustee with a form and a fee and property was returned within 3 months. Maybe the circumstances are more complicated in your case but it was pretty straightforward.

You might want to read up on the Making Tax Digital system coming in for landlords and sole traders over the next few years as when you have to comply with it, you'll be needing to send in quarterly reports to HMRC, as well as an annual return using one of the approved digital accounting software options (some are free, some are paid, depending on your experience and needs).

When you have to start depends on your gross income per year from being a sole trader/landlord.

That's 5 times a year you could have to do paperwork for HMRC instead of 1 on top of the new Renters Rights Bill.

You may decide it is more trouble than it's worth.

One of the reasons is to potentially cut my full-time hours down to part-time and help with my grandchild, as I will have the rental income to supplement my earnings.

Can you manage without it if your tenant defaults?

The first rule of investing is "don't put all your eggs in one basket". A single BTL is too much egg: one investment vehicle (the flat) concentrated in one sector (property).
Spread your risk more.

I am in the UK and have issued notice and registered this with the Public Trustee. There actually is a NOK although no contract for decades, this is the complication, they want little to do with it but won't sign paperwork to that affect so I have to go to court to exclude them. Legal advice I've had is that I have to do this as they could change their mind anytime and take me to court for illegal eviction (yes, of a dead person) if I clear out belongs without a court order.

I wouldn't. Look really hard at everything it involves. We rent for work and let out our house. I feel that's going to be impossible to get it back if say we lost our job and home. The only money we have made of any note is the increase in value if we can ever sell it. My current dream is the tennants to decide to move on. Because I also can't handle making them homeless. I don't regret it because we'd have fallen to far back to get on the property ladder without it. But I'd love to get rid now. During covid I realised it feels like a gov ceased asset and everyone hates landlords. But they hate you if you want to leave and sell up too. You need to be quite cold and we aren't. It was a very different game when we bought decades ago

Avoid this like the plague. Put £20k per year into an ISA (while you can).

Thanks everyone for your comments ..... really useful. I think I might have to come up with a plan B !

Sold ours last december and got a very good price. our tenants of 18 years moved back abroad so decided to sell. so much new paperwork, regs, licences now, couldnt face doing it all again. if you do go ahead, essential you get the rent guarantee insurances as they cover non payment and eviction costs etc, it can now take over a year to evict a tenant. personally, i wouldnt do it again now.

There’s also rumours the government is going to make landlords pay National Insurance on rental income after the next budget . I am a landlord but probably wouldn’t start now, I am also 58 and the first few years while I learnt the ropes were hell .