CharlieMac
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Are you planning on staying in Ireland forever or no? If you expect to leave the country in a few years again then does that change the advice given?
Moneymakeover Just took on vast mortgage
- Thread starter hilhid
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Mathematically from a pure wealth maximisation perspective, this is true. Ultimately we came to the decision that feeling tight during our 30s/40s with a young family wasn’t worth it in order to absolutely maximise wealth in what should be a comfortable retirement anyway.
That is attitude to risk and lifestyle views from one perspective though. No ‘right’ answer here!
€11,000 a month ish after tax income assuming 10% pension contribution each. €4,500 mortgage, €1,500 childcare (assuming you only plan to have the one!). Leaves you €5k to live on. It’s obviosuly doable but feels tight for a gross household income of €250k+.
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It’s not directly analogous due to the frictional costs of buying & selling, but if you posted your exact scenario, living in Ireland with no BTL & v large mortgage, and said you were considering taking out a £200k mortgage and using £130k cash to buy a property to rent out in London - the responses you would get would be quite amusing.
I would sell without any hesitation.
You mentioned in the first post that you are planning on only staying a few years in Ireland before heading off again. What do you plan to do with the house then? If you were thinking of selling it, I wouldn't get a long-term fixed-rate mortgage. The break clause penalty could be quite high for such an early break and large sum.
Regarding VRT exemption, you used to have to clock up a minimum number of miles as well as the 6-month period. But now you just need to show that the vehicle was used abroad during that 6 month period. So make sure to do some driving and get some fuel or service receipts or something.
Regarding VRT exemption, you used to have to clock up a minimum number of miles as well as the 6-month period. But now you just need to show that the vehicle was used abroad during that 6 month period. So make sure to do some driving and get some fuel or service receipts or something.
hilhid
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Well, only the 25% one is allowed to cash out in both the UK and Irish systems. My thinking was that it's basically a way to turn a stream of tax-free cash now into a larger lump of untaxed cash later. But clearly the closer you can get to taking the maximum tax-free amount (assuming that still exists in 20 years), the better you have done out of it. So again, my thinking was muddled on this: my strategy would have "made money" but yours makes more money over a longer timeline, and with more security (I think that's right, isn't it, that the closer you get to €800k before taking 25% from PRSA the better?)
the plan is to stay in ireland forever, but to be away for a few years every few years. the house we just bought is the "forever house" barring unforeseen circumstances. so no plans to sell. in fact the long fix helps because we don't have to worry about getting mortgages if one of us takes foreign currency jobs while we're away.
I have come the same conclusion having made this thread, especially with useful number-checking by OkGo which has made it clear how little money I am currently getting in exchange for tight finances to maintain the flat
Am planning to hesitate just a little as the current early-termination fee on the mortgage is £5k, which just seems like money I don't need to pay. from next may that goes down to £2k, then fix ends the following may. shout if that's stupid
good thought, thanks. it'll obvs be taxed and insured etc and we'll use it to go down to my parents a good bit rather than the train (since we'll have the car anyway)
Brendan Burgess
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Not stupid at all.
Strategically, you should sell the investment property.
Tactically, the timing will depend on such issues.
It's good that you're starting to think about sorting finances before moving from UK to Ireland, and AAM is a great place to get advice. However, at the level of salary and assets that you have, I would strongly advise paying a bit for individually tailored financial advice before you make the move. Stuff about the impact of the move on UK ISAs, remittance basis of taxation in Ireland etc. I am vaguely aware there are some tax planning opportunities you can take advantage of too, but I am not going to pretend I have any knowledge of the specifics.
There are a number of fee-based financial advisers on this forum who could help you, including at least one who has personally moved from UK to Ireland and specialises in these kind of cases. Best of luck.
Oh one more thing- take the advice earlier in the thread about the car. Car prices in Ireland are insane compared to the UK. Buy something decent in the UK before you leave and bring it in VRT free. There may be some rule about having had to own it for 6 months before importing it in order to qualify, but it'll still be worth it.
There are a number of fee-based financial advisers on this forum who could help you, including at least one who has personally moved from UK to Ireland and specialises in these kind of cases. Best of luck.
Oh one more thing- take the advice earlier in the thread about the car. Car prices in Ireland are insane compared to the UK. Buy something decent in the UK before you leave and bring it in VRT free. There may be some rule about having had to own it for 6 months before importing it in order to qualify, but it'll still be worth it.
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hilhid
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Wanted to update this thread as there have been a few developments. They mostly affect my thinking re the London flat. Many thanks for all your v helpful comments last year
The first development is that my lovely long-term tenants are leaving. I have increased the rent to 1900 a month, so the return is much better now
It was:
- Gross annual rent of 18000 less mortgage interest of 3200, service charge and ground rent of ~2000 and maintenance fund of ~1000 = ~ 11800 profit
- Tax at 40% on the taxable profits (mortgage interest no deductible) = 6000. Less interest credit of 20% on 3200, net tax due 5360
- post-tax cash flow of 6400. with ~132k in the flat that's a crappy 5% cash-on-cash return post tax. at that level I totally agree that paying down mortgage makes sense
But at 1900 a month, 22800 a year gross rent, the post-tax cash return goes up to 7.1%
The second development is that I have taken advice on the move (as suggested above, thanks miser) and am assured that I will be non-domiciled in Ireland. We move in August/September. This means that if I do not remit income from the flat to Ireland, there will be no Irish tax. But there will also be effectively no UK tax either, starting in the 2027/28 tax year, as I will retain my personal allowance as a UK citizen. Together with the mortgage-interest credit, it takes tax to zero.
If take out 50k of equity when I remortgage in april 2027, even at a higher rate for a non-resident landlord (HSBC has 4.7% right now), my cash-on-cash post tax return is circa 10%. I just...struggle to justify turning that down.
And that doesn't even include very gentle equity growth. If the flat did as well over the next five years as it has done over the last five, during a pandemic when one-beds in zone 2 were the pits, that adds another 5% cash-on-cash. There will be CGT there eventually, unless I just...never sell, and keep remortgaging and release equity when it's there
I would send the tax-free income stream to a brokerage account in the US where I am a citizen (the flat makes a paper loss for the IRS due to mortgage deductibility and depreciation). I would then leave it there to grow until a future stint in the US, or anywhere outside Ireland, which will almost certainly come as partner is a diplomat. If I want to get really cute I could take a sabbatical from work in the first year of a foreign posting, and draw down the entire US brokerage account completely tax free.
May not work out of course (BOE rates may rise from here). But large Irish mortgage is being overpaid maximally anyway, and fixed for five years. There's be big fees to pay it down more using equity from the London flat, and I'd be giving up 10% returns after tax *on top* of the 3.55% returns from paying down the mortgage. Just seems...not a good call!
Talk me out of this (again! I know, I'm sorry, feel free to just tell me I'm being annoying and you've already said your piece. to my mind non-dom and market rent changes the equation)
The first development is that my lovely long-term tenants are leaving. I have increased the rent to 1900 a month, so the return is much better now
It was:
- Gross annual rent of 18000 less mortgage interest of 3200, service charge and ground rent of ~2000 and maintenance fund of ~1000 = ~ 11800 profit
- Tax at 40% on the taxable profits (mortgage interest no deductible) = 6000. Less interest credit of 20% on 3200, net tax due 5360
- post-tax cash flow of 6400. with ~132k in the flat that's a crappy 5% cash-on-cash return post tax. at that level I totally agree that paying down mortgage makes sense
But at 1900 a month, 22800 a year gross rent, the post-tax cash return goes up to 7.1%
The second development is that I have taken advice on the move (as suggested above, thanks miser) and am assured that I will be non-domiciled in Ireland. We move in August/September. This means that if I do not remit income from the flat to Ireland, there will be no Irish tax. But there will also be effectively no UK tax either, starting in the 2027/28 tax year, as I will retain my personal allowance as a UK citizen. Together with the mortgage-interest credit, it takes tax to zero.
If take out 50k of equity when I remortgage in april 2027, even at a higher rate for a non-resident landlord (HSBC has 4.7% right now), my cash-on-cash post tax return is circa 10%. I just...struggle to justify turning that down.
And that doesn't even include very gentle equity growth. If the flat did as well over the next five years as it has done over the last five, during a pandemic when one-beds in zone 2 were the pits, that adds another 5% cash-on-cash. There will be CGT there eventually, unless I just...never sell, and keep remortgaging and release equity when it's there
I would send the tax-free income stream to a brokerage account in the US where I am a citizen (the flat makes a paper loss for the IRS due to mortgage deductibility and depreciation). I would then leave it there to grow until a future stint in the US, or anywhere outside Ireland, which will almost certainly come as partner is a diplomat. If I want to get really cute I could take a sabbatical from work in the first year of a foreign posting, and draw down the entire US brokerage account completely tax free.
May not work out of course (BOE rates may rise from here). But large Irish mortgage is being overpaid maximally anyway, and fixed for five years. There's be big fees to pay it down more using equity from the London flat, and I'd be giving up 10% returns after tax *on top* of the 3.55% returns from paying down the mortgage. Just seems...not a good call!
Talk me out of this (again! I know, I'm sorry, feel free to just tell me I'm being annoying and you've already said your piece. to my mind non-dom and market rent changes the equation)
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I dunno, the maths are starting to look much healthier, particularly with the non-dom status. You’ll be able to use the cash flow tax-free outside of Ireland (holidays, etc) ad infinitum, which is a nice bonus of your tax status.
Brendan Burgess
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Can you clarify.
Are you paying the mortgage on an empty property in Ireland?
You have an investment property in the UK where the income will be tax-free when you move to Ireland.
You are presumably paying rent in the UK, or does your wife's employer provide the rented property?
Are you paying the mortgage on an empty property in Ireland?
You have an investment property in the UK where the income will be tax-free when you move to Ireland.
You are presumably paying rent in the UK, or does your wife's employer provide the rented property?
Brendan Burgess
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It is not just about maximising wealth over the long-term.
It is also about minimising risk.
If everything keeps going well, holding onto the apartment and keeping shares may well be the best way to maximise your wealth.
But if things go wrong, you could find yourself in a precarious position.
It's a bit like insurance. You can maximise your wealth by never buying house insurance and 90% of the time, this will work out the best way to maximise your wealth.
But 10% of the time, you will be glad you paid your premium.
It may be tax-efficient to have UK rental income. But it's also harder to manage a property remotely.
I would still say sell the apartment and bring down your Irish mortgage. Check if it's best to do this while you are in the UK or after you move to Ireland.
It is also about minimising risk.
If everything keeps going well, holding onto the apartment and keeping shares may well be the best way to maximise your wealth.
But if things go wrong, you could find yourself in a precarious position.
It's a bit like insurance. You can maximise your wealth by never buying house insurance and 90% of the time, this will work out the best way to maximise your wealth.
But 10% of the time, you will be glad you paid your premium.
It may be tax-efficient to have UK rental income. But it's also harder to manage a property remotely.
I would still say sell the apartment and bring down your Irish mortgage. Check if it's best to do this while you are in the UK or after you move to Ireland.
hilhid
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- we are paying a mortgage in Ireland, yes, but it is not empty. rented out for a few months (to trusted friends who are doing a big reno. it's been RTBed etc)
- correct
- wife's employer covers our rent in the UK, yes (we pay a small top up for our place)
I do take this point. And when the reward for taking risk seemed meagre, I agreed with it. But now the reward seems fairly large. The risk seems manageable. We are, for instance, making sure that we've got solid income protection; rent-guarantee insurance on the flat with legal cover for 160 quid a year. These insurances are much much cheaper than selling the flat.
Yes, it's a bit of work to manage the flat and stay on top of the other risks, sure, but it's work that (for a higher-rate payer) is about to start paying the gross equivalent of a €22k side gig (after you account for opportunity cost of paying down mortgage, not including any appreciation). I've been doing it for years with no issues, including from as far away as Hong Kong. Dublin is going to be a breeze in comparison
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hilhid
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I think you mean the mortgage on the London flat? It's not a tracker. It's 1.62% fixed until April 2027. It's interest-only over the lifetime of the loan (designed to be paid back by selling the flat) but I would not allow it to lapse onto the SVR. Will either be remortgaging or selling come april 2027
You can get an interest only loan in the UK? How long in term do they allow that for? Does it automatically become SVR in April 2027? Because you said “lifetime”.
Which bank?
hilhid
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Yes, it's the norm for btl. Mine is 25 year term. It's interest-only over the term, but you get a lower fixed rate for 2, 3, 5, 7 or 10 years. "Lifetime" is just slang for term. My mortgage is w Natwest https://www.natwest.com/mortgages/buy-to-let.html
Why do you have an interest free credit card?
I'm amazed at the level of debt given your not living in the Irish home. Also surprised that it's lending in Ireland when you're based in the UK. Don't understand purchasing in Ireland given you've said you'll be heading off somewhere else. All seems good now while interest rates are low and property prices rising. Don't understand why you'd take 50K of 'equity' out of the rental flat either. Given the large salaries a proper money makeover would be beneficial to see where your spending is going. (as you mentioned you are spenders) Because on those salaries you should be overpaying mortgages and paying capital off the flat. Having seen too many crashes, and the havoc they caused being upbeat on all going well seems misplaced. Especially since you're able to bring down debt with your salaries. Update is interesting.
hilhid
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I think maybe you mean why do I use interest-free credit? (I have one because they are commonly offered in UK market). I use it because it allows me to do things I could not otherwise do for a lower price than I would otherwise be able to do. A real example: buy a good second-hand car in the UK to bring back to Ireland with no tax, saving many thousands. There was no way to save enough to do that before we come home no matter what we sacrificed.
We've bought in Ireland because wife is a diplomat, meaning her job sends he overseas every few years, then cycles her back home for a few. We need somewhere to live when we've home. Renting a family home is somewhere between a nightmare and actually impossible. Incidentally my plan is to remortgage onto Avant One once we're back in Ireland to eliminate the risk that a fix lapses and rates move against us while we're abroad.
I clearly have a different attitude to debt than many on AAM. Not sure why, maybe it will all come crashing down. I've been comfortable for this for years though. I got through college by taking out interest free loans from a different bank every year, on top of my maintenance grant and odd jobs. They had introductory offers for new student accounts. Every year I'd roll last year's debt into the new loan. Paid it down with part time and summer jobs. Rolled it all one final time at the end, and paid it all off with my first job in London before the 0% intro period ended. As with the car, this allowed me to do things I could not otherwise do, go to college, and I never paid a cent of interest. My experience has been that if you manage it well, debt is a real friend, not foe. But I fully admit that most Irish people see it very very differently as inherently terrible
The reason I asked is that interest free credit cards are often used as a marketing ploy to attract new customers who are paying down debt on a high interest card.
Car
Not fully aware of the rules but I do live abroad, my understanding is that we can go to Ireland with a new car as long as it's owned 6 months, which in some countries makes it advisable to purchase a new car. You're in the UK, so it's even better as the wheel is on the correct side for Ireland. You want to be very careful about the VRT though. I looked at bringing back a 20 year old car that was a very cheap car and the VRT calculation said I'd to pay VRT (I'm not technical so maybe I did it wrong)
Odd on those salaries you can't purchase a car outright.
Diplomatic Status
Now it makes sense. You should have stated that at the beginning because it makes advice completely different. I know many people in such situations. Yes it makes sense to have a home in Ireland. And also that's why it was easy to get a bank loan, banks have special teams for those types of people.
Debt
Anyone on high permanent pensionable employment can have a different attitude to debt. Based on your track record you know what you are doing.
Rental
If you're comfortable with it and feel it's washing it's face than keep it, but I'd still pay down the capital ! We had some horror stories on here over the years of people on interest only deals.
Car
Not fully aware of the rules but I do live abroad, my understanding is that we can go to Ireland with a new car as long as it's owned 6 months, which in some countries makes it advisable to purchase a new car. You're in the UK, so it's even better as the wheel is on the correct side for Ireland. You want to be very careful about the VRT though. I looked at bringing back a 20 year old car that was a very cheap car and the VRT calculation said I'd to pay VRT (I'm not technical so maybe I did it wrong)
Odd on those salaries you can't purchase a car outright.
Diplomatic Status
Now it makes sense. You should have stated that at the beginning because it makes advice completely different. I know many people in such situations. Yes it makes sense to have a home in Ireland. And also that's why it was easy to get a bank loan, banks have special teams for those types of people.
Debt
Anyone on high permanent pensionable employment can have a different attitude to debt. Based on your track record you know what you are doing.
Rental
If you're comfortable with it and feel it's washing it's face than keep it, but I'd still pay down the capital ! We had some horror stories on here over the years of people on interest only deals.