Which property should I sell?

[Brendan Burgess]

It is important that you avoid the mistake of silo thinking.

Legally, you have mortgages assigned to specific properties.

But take an overall look at the position. You have €2.5m in property and €800k borrowing.

You want to pay off your most expensive borrowing - most expensive being net interest rate after tax. That would appear to be your home loan by some margin.

 

[nbc]

Not sure what you mean by "abs".

Theres no fib here.

Give notice on the City West property that you require it for your own use; that's about 8 months notice I think from memory (double check).

Then rent out the property you currently use for weekend use (& get market rent) and use the City West property instead.

After 2 years you can reverse & get the City West property let out at market rent.

Thanks Danny- I don’t think it would be accepted and successfully challenged by previous tenants that I don’t require it for Personal use as I already have a home. This plan may prove costly.

 

[nbc]

So is the following summary about right?

View attachment 7656
So, you have about 30% gearing.

This is how I would approach the problem , and maybe you have done the first few steps.


1) Have I too much of my wealth in one asset class, property?
2) Have I too much borrowing?

If the answer to either of these is yes, then you decide how many properties you want to sell.

Then you assess each one on its merits.

Maybe you have done these steps, but it's not obvious to me.

So why are you selling either property?
Why is it one or the other? Why not neither or both?

Brendan

Thanks Brendan
Your figures are not far off the mark
Reason for selling? I think wise to diversify
Yes I could sell both but one would be a good start
One is generating €1500 per month before expenses and tax
The other is generating 0
I was curious to see if there was one that people thought was obvious to sell but there doesn’t seem to be.
Both are rented significantly below market rent and this won’t change.

 

[nbc]

It is important that you avoid the mistake of silo thinking.

Legally, you have mortgages assigned to specific properties.

But take an overall look at the position. You have €2.5m in property and €800k borrowing.

You want to pay off your most expensive borrowing - most expensive being net interest rate after tax. That would appear to be your home loan by some margin.

Thanks Brendan
There is another option
I would be allowed to put about €200000 of it into my SIPP pension
This in fact would after tax relief cost me 120k
And I’d still have 180 k left over
I generally prefer property to pensions but this seems attractive would you agree?
And makes selling property one perhaps a better option
NBC

 

[DannyBoyD]

successfully challenged by previous tenants that I don’t require it for Personal use as I already have a home

Read the RTB documents, there is no such condition required.

There's no "cost" here either.

 

[Brendan Burgess]

There is another option
I would be allowed to put about €200000 of it into my SIPP pension
This in fact would after tax relief cost me 120k
And I’d still have 180 k left over
I generally prefer property to pensions but this seems attractive would you agree?

If it were an Irish pension, it would be absolutely clear that you should sell a property and invest in a pension. But I don't know if this also applies in the UK.

I must write a book on expensive financial myths.

It is not a question of property vs. a pension.

It is valid to say "I prefer property to equities " or "I prefer directly owned investments to owning them via a pension fund."

A pension is only a vehicle. In Ireland, you can own a property via your pension vehicle. Can you not do that in the UK?

 

[nbc]

Read the RTB documents, there is no such condition required.

There's no "cost" here either.

That’s v interesting Danny
Thanks
Can I tell the tenant that’s why I’m moving back? And anyone who asks?’ I need to make this my PPR so I can rent for market rent in 2 years’ -there’s no comeback?

 

[nbc]

If it were an Irish pension, it would be absolutely clear that you should sell a property and invest in a pension. But I don't know if this also applies in the UK.

I must write a book on expensive financial myths.

It is not a question of property vs. a pension.

It is valid to say "I prefer property to equities " or "I prefer directly owned investments to owning them via a pension fund."

A pension is only a vehicle. In Ireland, you can own a property via your pension vehicle. Can you not do that in the UK?

Thanks again
Only commercial property
NBC

 

[nbc]

If it were an Irish pension, it would be absolutely clear that you should sell a property and invest in a pension. But I don't know if this also applies in the UK.

I must write a book on expensive financial myths.

It is not a question of property vs. a pension.

It is valid to say "I prefer property to equities " or "I prefer directly owned investments to owning them via a pension fund."

A pension is only a vehicle. In Ireland, you can own a property via your pension vehicle. Can you not do that in the UK?

You say ‘

If it were an Irish pension, it would be absolutely clear that you should sell a property and invest in a pension. But I don't know if this also applies in the UK. ‘

Why absolutely clear- my understudying is that although you get tax relief going in - apart from 25% you get tax free after age 55 ( in Uk) anything else you take out will be taxed at 40% ( in my case)- there is clearly some gain with appreciation and the tax free lump sum but is it absolutely clear as you say?

 

[ClubMan]

my understudying is that although you get tax relief going in - apart from 25% you get tax free after age 55 ( in Uk) anything else you take out will be taxed at 40% ( in my case)

You get tax free growth too.
And the pension income drawn down may not be taxed at the high rate depending on the amount.

 

[DannyBoyD]

That’s v interesting Danny
Thanks
Can I tell the tenant that’s why I’m moving back? And anyone who asks?’ I need to make this my PPR so I can rent for market rent in 2 years’ -there’s no comeback?

If you look up the RTB site they have all the documentation there.

You give notice on the grounds that you need the property for your own use. It doesnt have to be your PPR, and you are not required to make any declaration to that effect.

Once it has not been rented for 2 years, you let it out again at market rent.

In the meantime, during that 2 years, the property you are currently using for weekends, can be let out full time.

 

[nbc]

If you look up the RTB site they have all the documentation there.

You give notice on the grounds that you need the property for your own use. It doesnt have to be your PPR, and you are not required to make any declaration to that effect.

Once it has not been rented for 2 years, you let it out again at market rent.

In the meantime, during that 2 years, the property you are currently using for weekends, can be let out full time.

Many thanks Danny

 

[Brendan Burgess]

Hi nbc

Investing via a pension vs. owning property directly seems clear to me.
You have a long horizon. It accumulates tax-free and you will probably get 25% of it tax-free.

However, on reflection, it might be better to use the proceeds to pay off expensive borrowing.

So, I think it's clear that selling and contributing to a pension is better than not selling.
However, it might be better to sell and pay down the expensive debt.

 

[nbc]

Hi nbc

Investing via a pension vs. owning property directly seems clear to me.
You have a long horizon. It accumulates tax-free and you will probably get 25% of it tax-free.

However, on reflection, it might be better to use the proceeds to pay off expensive borrowing.

So, I think it's clear that selling and contributing to a pension is better than not selling.
However, it might be better to sell and pay down the expensive debt.

Great advice Brendan
Thanks

 

[LondonIrish]

Slightly off-topic but as a UK taxpayer there are some decent options for your money should you decide to sell one or more of your properties.

Do you invest in ISAs where gains accrue tax free? You have a £20k annual allowance and you can also pay the same amount into ISAs for your partner and adult children. For children under 18 the allowance is £9k and given where interest rates are in the UK you should be able to get 5% from a money market fund or cash ISA. So pensions are not the only vehicle to deposit the proceeds of a property sale.

Similarly, as a UK taxpayer, capital gains on Gilts are tax free. Through any of the online brokers/investment platforms you can easily find 6m to 2 year gilts with low coupons but trade at a discount to par (there are loads of yield calculators online). At the moment you can lock in around a 5.1% annualized return but only pay tax on the modest coupon payment so as a higher rate taxpayer you'd need a 7.7% gross return on any other investment to be able to rival this and it is relatively low risk even when you take into account the crazy politics here.

In any event good luck with whatever decision you take.