Moneymakeover Money Makeover - advice on investing after sale of rental

[Colin4444]

Personal details

Your age: 50
Your spouse's age: 46
Number and age of children: n/a


Income and expenditure
Annual gross income from employment or profession: 35,000 (part time)
Annual gross income of spouse/partner: 56,000

Monthly take-home pay: 4,800 approx

Type of employment - e.g. Employee or self-employed. -> Employee
Employer type: e.g. public servant, private company. -> Private

In general are you:
(a) spending more than you earn, or
(b) saving?
Saving (approx 20k per year)

Summary of Assets and Liabilities
Family home value: 400k
Mortgage on family home: 0
Net equity: 400k

Cash: 50k
Defined Contribution pension fund: have 2, one has 166k with no monthly contributions, other has 16k with monthly contributions of about 880 (max AVC for tax purposes)
Company shares : 0
Buy to Let Property value: 280k
Buy to let Mortgage:45k
Have 50k in 10 yrs state saving, mature in 2034 and will get 61k
Total net assets: 867k


Other borrowings – car loans/personal loans etc
Car loan of 383 pm, finish Nov '26


Do you pay off your full credit card balance each month? yes
If not, what is the balance on your credit card?

Pension information

Value of pension fund:
have 2, one has 166k with no ,monthly contributions, other has 16k with monthly contributions of about 880 (max AVC for tax purposes)
Wife has maxed out AVC contribs as well.

Buy to let properties
Value: 280
Rental income per year: 14,400
Rough annual expenses other than mortgage interest : 3k (does not include mortgage payment)
Lender ebs
Interest rate: tracker think about 3.75%
If fixed, what is the term remaining of the fixed rate?

Just starting to sell this property now, going through solicitor and eviction notice should be served on tenants next week.

Other savings and investments:


Other information which might be relevant

Life insurance: we have this for the mortgage on the rental, think abt 80k which covered the mortgage at the time.


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

How we doin ?

I assume no point in paying of rental mortgage as we are selling, hopefully by end of next year will all be done

Plan to retire when 63, the year when I will have made full PRSI contribs to qualify for full state pension

Main question is what to do with the proceeds from sale of property, approx 220k after mortgage, CGT etc
Am kinda risk adverse!


Heard of this way of investing on ABM: bond dot ie (what do they mean by '101% allocation'? Management fees are decent @ .65%)

 

[Sarenco]

Are you sure it makes sense to sell the rental?

It seems to be throwing off a reasonable net annual profit and you don’t have an obvious alternative home for the equity.

Other than that, you should use some of your cash to pay off the car loan and yourself and your spouse should be maxing out your pension contributions.

Overall, you are in pretty good financial shape. Getting mortgage free by 50 puts you in a great position to really ramp up your retirement savings.

 

[ClubMan]

Heard of this way of investing on ABM: bond dot ie (what do they mean by '101% allocation'?

The extra 1% covers the cost of the government levy on such investments so that if you invest €100 then that's the amount that gets invested, not €99.

Product and Service | www.bond.ie

Execution Only Investment Bond

www.bond.ie

• The allocation rate is 101% so the current Government Levy is covered

 

[Colin4444]

Thanks guys,
@Sarenco Definitely want to get rid of the rental, sick of all the laws. The last thing I want when I retire is unable to sell it, and stuck managing a property..
Currently we both are maxing out our pension contributions..

@ClubMan That explains that then, thanks

 

[Colin4444]

Any advice on investing?

 

[ClubMan]

Any advice on investing?

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ETFs or unit linked funds are an alternative but the 38% 8 yearly deemed disposal and encashment tax remains much less attractive than CGT treatment of direct equity shareholdings. This may change in coming years but no-one knows if/when for sure.

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41% to 38% exit tax on Unit Linked Investments

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[Sarenco]

If you want a guaranteed return on your money, you will have to stick with State savings products or fixed-term deposits.

If you want to improve your odds of achieving a return that outstrips inflation over the long-term, then you could do worse than investing in Zurich’s international equity fund via bonds.ie.

Or some combination of the two.

I don’t think you should go near direct equities or ETFs unless you know what you are doing.

 

[Colin4444]

Thanks Sarenco, yeah I think bonds.ie will do the trick then.. already have 50 in state savings..

Or maybe learn about shares and put 50 in and see what happens

 

[Tuscany]

Thanks Sarenco, yeah I think bonds.ie will do the trick then.

Don't think it's bonds.ie; you'll have more joy with bond.ie!
I had to look up both; I don't know about bond.ie, btw.

You're in a good position and it sounds like getting rid of the rental will nearly be a relief to you.
That's an important consideration.

 

[Colin4444]

Thanks Tuscany, yeah bond.ie..

This was deleted b4 cause it contained a bad word... sorry

Thanks Clubman,
What I was thinking:

1. I have a PRSA with Irish Life, with 166k in it, could I just top that up with the 200k? Is their any tax concerns etc with that, IL fees etc
2. Use bonds dot ie, as when you take out, the tax is all sorted by Zurich (one reason getting rid of rental, I hate ROS, filling out forms, paying tax etc
3. State savings - I know returns are bad, but its guaranteed, tax free etc?
4. Shares / EFT- but I dont know anything about these?
As you can see I like ease, just put the money in and watch it grow, even if it is not the best scheme. If investing 200k, I would prefer to get guaranteed 250k, rather than 300k or possibly 150k.. if that helps


Which of the above would be best, taking into consideration my attitude?

I assume, the first option would be worse than option 2 - bond.ie

 

[Sarenco]

Well, you won’t get any tax relief on the lump sum contribution and any drawdowns will be taxable.

In other words, it’s a bad idea!

 

[Colin4444]

Grand so thanks..
bond.ie is probably best option for me then...

 

[Colin4444]

Hi guys,

Re-visiting this as I am closer to sale of rental finalising - closing date is 29th October.. should have 200k to invest..

Go easy on me as I am very much an amateur!

IL = Irish Life
Had a meeting with IL advisor yesterday (the company pension) and he advised against topping up my PRSA with 100K, due to tax when drawing it down - is this good advise? He advised another IL investment product (Clear Invest), but fees are too high.

My current thinking is
1. 100k in bond.ie
2. Open up a separate PRSA and put 100k to avoid the deemed disposal payment.


- I know I will have to pay tax on drawdowns later, but this is only on the growth on the 100k - is this correct?
- If I did have to pay tax on drawdowns, would this be less that deemed disposal anyway?
- I know changes are being made to deemed disposal.. so if this reduces may make bond.ie more competitive?
- I already have my company PRSA and a separate PRB - how many PRSA's can you have?

I'm sure I'm missing something, but is the logic sound?

 

[Colin4444]

Well, you won’t get any tax relief on the lump sum contribution and any drawdowns will be taxable.

In other words, it’s a bad idea!

I dont really get this now..

I know I dont get tax relief on the lump sum contribution - but you dont get any on any other type of investment either?
Drawdowns will be taxable - it is only on the growth part that is taxable, other investments have deemed disposal to pay?
AI is saying that overall the tax you would pay on a PRSA would be less than deemed disposal on 100k invested for 10 yrs?

 

[ClubMan]

Had a meeting with IL advisor yesterday (the company pension) and he advised against topping up my PRSA with 100K, due to tax when drawing it down - is this good advise? He advised another IL investment product (Clear Invest), but fees are too high.

I don't think that this is good advice. You're 50 with only €182K in pensions as far as I can see from the original post so boosting your pension would seem like a priority to me. But I don't know what level of pension cover your spouse has.

- I know I will have to pay tax on drawdowns later, but this is only on the growth on the 100k - is this correct?

You mean in relation to pensions? No, you get tax relief on contributions on the way in up to your age related relief level, tax free growth within the pension fund, and then at retirement you can take 25% (up to a maximum of €200K) tax free and then any ongoing income that you draw down from a vested PRSA or ARF or annuity is income which is assessable for income tax (and maybe PRSI/USC) as normal.

- I know changes are being made to deemed disposal.. so if this reduces may make bond.ie more competitive?

Are you sure that the product offered by bond.ie is subject to 8 yearly deemed disposal and not just LAET (Life Assurance Exit Tax)?

- I already have my company PRSA and a separate PRB - how many PRSA's can you have?

There's no limit as far as I know and having multiple separate pensions can be beneficial in the flexibility that it offers on terms of being able to access retirement benefits on a phased basis rather than it being a one time only/all or nothing event.

 

[ClubMan]

Drawdowns will be taxable - it is only on the growth part that is taxable, other investments have deemed disposal to pay?

I don't know where you're getting this from if it's in relation to pensions. In that context it's completely wrong.

 

[cotty34]

1. 100k in bond.ie

Why not do it yourself? The deemed disposal calculation/filing is very easy on one lump sum transaction (if deemed disposal is still around in 8 years time), is the extra fee paid to Zurich/Bond.ie worth it? You could invest yourself via Degiro/IBKR in a low cost index fund for ~ 0.10%.

 

[Colin4444]

You mean in relation to pensions? No, you get tax relief on contributions on the way in up to your age related relief level, tax free growth within the pension fund, and then at retirement you can take 25% (up to a maximum of €200K) tax free and then any ongoing income that you draw down from a vested PRSA or ARF or annuity is income which is assessable for income tax (and maybe PRSI/USC) as normal.

Sorry I should have been clearer, I already contribute 30% of my salary to my current employers PRSA, this would be a separate PRSA that I setup to invest an additional 100k, so no tax relief here.
When I retire say at 65, I could withdraw 25% tax free, but when drawing down I would have to pay tax (paye) on any growth above the 100k?

You're 50 with only €182K in pensions

Thats up to 230k now

Are you sure that the product offered by bond.ie is subject to 8 yearly deemed disposal and not just LAET (Life Assurance Exit Tax)?

Well AI says:
Yes, investments purchased through bond.ie—which are unit-linked investment bond products underwritten and managed by Zurich Life Assurance plc—are subject to Ireland's life assurance exit tax rules and the 8-year deemed disposal mechanism.

I don't know where you're getting this from if it's in relation to pensions. In that context it's completely wrong.

see first point above

Why not do it yourself? The deemed disposal calculation/filing is very easy on one lump sum transaction (if deemed disposal is still around in 8 years time), is the extra fee paid to Zurich/Bond.ie worth it? You could invest yourself via Degiro/IBKR in a low cost index fund for ~ 0.10%.

TBH was a landlord for years and hated filling out form 11 and paying tax each year, would just prefer it managed!

 

[ClubMan]

When I retire say at 65, I could withdraw 25% tax free, but when drawing down I would have to pay tax (paye) on any growth above the 100k?

Apart from the tax free lump sum taken from a pension, any/all ongoing income is assessable for tax like any other income. What tax etc. will actually be due depends on factors like the annual amount is drawn, your tax credits, your standard rate cut-off point, if you are jointly assessed with your spouse etc.

I really don't know where you're getting this from. It makes no sense.

 

[ClubMan]

Sorry I should have been clearer, I already contribute 30% of my salary to my current employers PRSA, this would be a separate PRSA that I setup to invest an additional 100k, so no tax relief here.

Ok, so you're already maximising your age related tax relieved pension contributions so you're not going to get tax relief on any further contributions?

What about your spouse? Are they maximising their pension contributions or could some of the property sale proceeds be used to do that?