Monday, February 9, 2015

Thinking of taking your pension as a lump sum?

In March 2014 Chancellor of the Exchequer George Osborne announced several radical changes to the ways you can manage and access your pension. These changes were confirmed in the Taxation of Pensions Bill published on October 14, and will take effect from April 2015.

The new pension rules have been designed to give savers greater control over their money going into retirement. The changes also abolish pension 'death tax', cover free guidance for savers and new restrictions on private pension contributions.
If you are nearing retirement, it is important you take these changes into account.

The biggest change was the proposal to allow individuals aged 55 or above to take the whole of their pension pot as a cash lump sum from April this year.
Currently, although you don’t have to buy an annuity with your pension pot you are not allowed to withdraw it all as a lump sum unless it falls under specific rules governing 'small pots'.  There are a range of options to choose from if your pension fund is not considered a 'small pot'  – including buying an annuity.

If you take all your pension pots as cash, you lose the option of converting them into a regular retirement income – for example, by buying an annuity. Cashing in your pension pots can also affect how much you’ll be entitled to receive in state benefits when retired. For example, if you boost your savings by taking your whole pension pot as a lump sum this may reduce your entitlement to Pension Credit.

We recommend that you take advice before deciding what to do. Also read

If you do decide to take all the 'pot' then investing in a residential property to rent out has to be an option worth considering.

In Ely the average 2 bedroom house is currently achieving rents around £700 pcm. and gives an annual income of £8,400. The purchase price of such a house would be in the region of £180,000. This is a gross yield of 4.67%. If you take out management charges (these are currently allowable against income tax)  for the property at 10% plus VAT then the income falls to £7,392 and the net yield before tax becomes 4.1%.  Compare that with the best performing investments at the moment! The other area to bear in mind is the potential for capital growth in the value of the property although, perversely, this technically reduces your yield.

Maintenance and repairs are currently allowable against tax so boiler servicing etc are tax deductible.
As stated you should take professional advice on matters relating to your pension arrangements but if you need any advice on property matters we are here to help! Talk to the team about house purchase on Ely 665020 or specifically to Robert Mills about lettings and property management.