Should I sell property and max pension contributions?

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MrPaws

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Personal details

Age: 47
Spouse's age: n/a
Number and age of children:n/a

Income and expenditure
Annual gross income from employment or profession: €78,000
Annual gross income of spouse/partner: n/a

Monthly take-home pay: c.€3,500

Type of employment - Employee
Employer type: Public servant

In general are you:
(a) spending more than you earn, or (b) saving? Saving a little bit.

Summary of Assets and Liabilities
Family home value: €300,000
Mortgage on family home: €185,000
Net equity: €115,000

Cash: €30,000
Pension: PS pension w/ seven years contribs. PRSA c.€30,000
Company shares : n/a
Buy to Let Property value: Apartment worth c. €230,000
Net rental yield: €6,000
Any gain in property value above €250,000 subject to CGT.
Buy to let Mortgage: n/a

Total net assets: €405,000


Family home mortgage information
Lender:AIB
Interest rate: 2.45%
Type of interest rate: Fixed until Aug 2027

Remaining term: 18 yrs
Monthly repayment: €1,057

Other borrowings – car loans/personal loans etc

N/A

What specific question do you have or what issues are of concern to you?

Like a lot of people I lost the best part of a decade due to the financial crash and am playing catch-up, particularly with respect to pension.
My main question is should I sell the investment property to clear mortgage and use the extra cashflow to max pension contributions?
From my own calcs, I would be better off on paper to sell, but left without a cash-generating asset and one that I can't access until retirement.
Would be interested to get people's views...
 
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Sarenco said:
Well, the yield on the rental is awful - you could do better with a bank deposit.

So, in your shoes, I would sell the rental, clear your mortgage and purchase notional service/make AVCs.
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I looked into purchasing notional service, but I can't unfortunately. AVCs only.

The yield is after tax so not that bad in reality.
 
I am doing this at the moment.
Gone sale agreed on my rental.
Going to clear my mortgage, put remaining 50k into college fund.. and then max out my pension contributions.

About the only good thing about paying the high rate of tax is being able to take advantage of the tax free pension contributions..

In your case this makes lot of sense. Not to mention getting out of being a landlord.
 
MrPaws said:
My main question is should I sell the investment property to clear mortgage and use the extra cashflow to max pension contributions?
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Yes, definitely sell and clear your mortgage.
Ben147 said:
In your case this makes lot of sense. Not to mention getting out of being a landlord.
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This; not being a landlord. Life is too short for the hassle and worry, certainly not for €6000 a year.
Having no debt and not having any financial hassles is a huge thing. There's more to life than money and in your case the hassle massively outweighs the return.

At the moment, even without making AVC's you can be looking at retiring at 65 mortgage free on €35k a year with a lump sum of over €100k. That's not bad at all.
 
Purple said:
At the moment, even without making AVC's you can be looking at retiring at 65 mortgage free on €35k a year with a lump sum of over €100k. That's not bad at all.
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Can you please explain the pension calc for €35K a year and lump sum of over €100K ? Is that 25 years contributions to a PS pension plus €30K PRSA ?
 
Flybytheseat said:
Can you please explain the pension calc for €35K a year and lump sum of over €100K ? Is that 25 years contributions to a PS pension plus €30K PRSA ?
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I'm assuming 35 80ths of a €78k pension plus 1.5 times annual salary tax free lump sum. The PRSA is not considered. There's plenty of people here know know more about pensions than me, probably most people here know more about them than me.
 
MrPaws said:
The yield is after tax so not that bad in reality.
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Well, that changes things!

So, the net (pre-tax) profit on the rental is around €12,500 per annum, which I suspect is giving you the cash flow to make AVCs.

I think we would have to see all the figures to offer a better view but I suspect it’s a finer call than I originally thought.
 
Sarenco said:
Well, that changes things!

So, the net (pre-tax) profit on the rental is around €12,500 per annum, which I suspect is giving you the cash flow to make AVCs.

I think we would have to see all the figures to offer a better view but I suspect it’s a finer call than I originally thought.
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No, the gross profit is around €12,500 - around €6,000 net. But another issue to consider is that I will be hit for CGT once the property value goes above €250,000 eating into any cap appreciation gains.
 
MrPaws said:
No, the gross profit is around €12,500 - around €6,000 net.
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Your net profit is the amount that gets taxed - gross rental income, less allowable expenses.

Are you saying your (pre-tax) net profit is €12.5k, €6k after tax?

Was the rental your PPR at any stage?
 
I would sell. You can get the benefit of tax relief on AVCs and tax-free growth in your pension fund that you won’t get from your property.

You will immediately have a better lifestyle by not having a PPR mortgage anymore.

You simply and de-risk your life by not being a landlord too.
 
@Sarenco Apols - yes, I end up with c.€6,000 a year after paying all taxes and expenses. It was my PPR for a long time (12 years). The apartment was never actually an investment property, but an inheritance. I availed of PPR relief. At the time it was valued at €250,000.

@Dr Strangelove & @Purple - you are right to mention the landlord element. I never intended to be one but had to move for employment reasons so I guess I am an accidental landlord. I am not suited to it tbh
 
On the other hand, 6k per year in perpetuity
Is equivalent to 4% yield on 150k

I agree your CGT probably increasing the longer you rent it out... That would be the benefit of selling now .
 
moneymakeover said:
I agree your CGT probably increasing the longer you rent it out... That would be the benefit of selling now .
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The opposite is the case.

Increasing CGT means increased capital gains (along with ongoing rental income).

A positive factor in holding on to the property.
 
MrPaws said:
It was my PPR for a long time (12 years).
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That’s a very valuable CGT “shield” that would argue in favour of retaining the rental.

Say you sold the property after 20 years ownership, you would only pay CGT on 7/20 of the realised gain (less disposal expenses, etc, less your annual allowance).

As things stand, if you sold the rental and made a 20% AVC, you would end up with (very) approximately €44k pa after tax.

On the other hand, if you kept the rental and made a 20% AVC, you would end up with (very) approximately €32k pa after tax and €18k mortgage payments.

But of course you would still have the rental, which would be a useful source of income in retirement.

I still think, in your shoes, I would sell the rental and simplify your life by paying off the PPR mortgage.

But that’s a fairly fine call.
 
llgon said:
The opposite is the case.

Increasing CGT means increased capital gains (along with ongoing rental income).

A positive factor in holding on to the property.
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The longer it's rented the more tax

If you live for 10 years
Then you rent for 10 years
You pay pro rata 50% of the CGT

If you rent it for a further 10 years you pay 66% of the CGT due

Comprendez?
 
moneymakeover said:
The longer it's rented the more tax

If you live for 10 years
Then you rent for 10 years
You pay pro rata 50% of the CGT

If you rent it for a further 10 years you pay 66% of the CGT due

Comprendez?
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This would be relevant if there were capital gains to be banked with reduced tax at present. However, the OP would have no capital gains if selling now.

Did you read Sarenco's post above? It has explained that the fact that the OP previously lived in the house is a factor in retaining the rental due to the CGT situation. They have given good advice and the explanation is very clear and understood.
 
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