Property vs Pensions

[dazzleship]

Hi,
First time to submit a thread so forgive me if you've seen this type of scenario before. I need some advice on the following:
I'm a 40 year old man who has no pension in place.
I have two houses; one I live in and the other i've rented for the last 6 yrs.
House one (my home) is valued at €380.000 (with a outstanding mortgage of €139.000)
House two (is rented out) is valued at €600.000 (with a outstanding mortgage of €122.000 (and this is the house we want to move to and live in)).
I'm thinking of selling my principal home now (thus saving on CGT) and with the balance of the sale I was going to pay off my 2nd property's mortgage, move in there and invest the remainder in a pension fund (if possible) while continue to pay what was the old mortgage payments, also into the pension.

The big question is: Am i better off leaving things the way they are or is this idea possible a winner?

Thanks in advance for your help/comments!

Dazzleship.

 

[tiger]

Assuming you're working and paying tax, I would try and maximise the tax relief on contributions. In the 40-49 bracket you can get relief on 25% of your income. For (roughly) every €60 you invest, you get €100 into your pension (if paying tax at the top rate).

 

[ClubMan]

Don't forget PRSI relief on standalone pension contributions which must be claimed separate to the tax relief.

You should probably get independent, professional advice no matter what feedback you get here.

 

[dazzleship]

Thanks for the good advice,
Yes, i am self-employed. and the tax breaks are attractive but because I'll have to pay tax when drawing down my pension is it not more like a deferral of tax as opposed to tax relief?

I suppose the main headache I'm having is choosing which option could net me the biggest return over the 20 or so years until i retire. Will keeping the property, renting it for the 20 year term (thus having someone else pay the mortgage) and then selling it net me more than selling it now and starting a pension with the proceeds?
I know there's no guaranteed returns but does anyone feel that property is a safer bet for a better return?

Again, thanks for you time.

 

[ClubMan]

Yes, i am self-employed. and the tax breaks are attractive but because I'll have to pay tax when drawing down my pension is it not more like a deferral of tax as opposed to tax relief?

That's the case for most people whether they're self employed or employee. For high rate taxpayers there is probably a good chance (?) that they may end up paying low rate tax on their pension in which case the tax savings (e.g. 21% income tax and c. 6% PRSI for employees, 5% for self employed?) are significant and not just a deferral.

I suppose the main headache I'm having is choosing which option could net me the biggest return over the 20 or so years until i retire.

Don't forget the other tax advantages of pensions - gross roll up and the possibility of taking up to 25% as a tax free lump sum.

Will keeping the property, renting it for the 20 year term (thus having someone else pay the mortgage) and then selling it net me more than selling it now and starting a pension with the proceeds?

Bear in mind also that if you already own property (including your own home) then there are risks attributable to concentrating most or all of your means into one asset class, geographic region and risk/reward profile versus diversifying a bit more to ameliorate the risks/volatility.

I know there's no guaranteed returns but does anyone feel that property is a safer bet for a better return?

Nobody can predict the future I'm afraid. You would be better off sticking to the known knowns on this front. Crunch the numbers and make a call on it. If in doubt get independent, professional guidance.