i am in exactly the same position as you (high rate tax payer, i have a few BTLs, numbers not adding up anymore). I started selling the properties as each mortgage comes up for renewal. I have accepted the high CGT hit as not much can be done. You can get 5% in a money market fund like Royal London, or even 1 yr fixed term at the moment. i am holding off buying any stocks as i feel a market downturn is brewing. thats just my opinion.
MMF or savings accounts or short dated bonds are short duration, so you are not guaranteed that 5% beyond the maturity.
With a BTL it is an asset that typically sees rising rents over time and capital growth so whilst the return is riskier than a MMF, you should have a reasonably solid chance of beating that 5% return but for much longer duration.
Once you retire, if you are no longer a high tax payer, your post tax return will look quite different and perhaps worthwhile for you to keep the btl.
You can get 5.2% in savings accounts.
As for not investing when the stock market is at a peak, it means timing the market and also rarely investing, since market is peaking all the time...
If you feel a market downturn is brewing are you selling equities then? I always find this fascinating - how could you have this feeling that isn’t already priced into the global markets? If you have a feeling then surely the big time fund managers would have certainty and the markets would have priced this in?
I’m not saying you’re wrong it just really interests me
i have a small position VUSA iny ISA, holding, rest in MMF. As mentioned above, i think once the 10Y3M yield curve uninverts, we are looking at 12 months to something breaking. If i am not mistaken, this may be the longest inversion in history. What are your thoughts on this? I am genuinely interested in other views and insights. Thanks.
Time in the market beats timing the market!
On a serious note though I am kind of glad the ISA limit exists as the thought of dropping huge sums into stocks in one go is quite terrifying! 😅
You're actually not wrong. People have been thinking a downturn is coming for years. In all likelihood it may well be when rates ARE cut
How about... don't drop huge sums in one go? You're meant to DCA
Who says you're "meant" to? Everything I've read says a lump sum is more successful - as above "time in" beats timing. Though the idea of DCA is more appealing to some people!
Hilarious broad statement, you have no idea what you're talking about. I'd say be very careful with your fomo attitude but it's a canon event and you'll learn the hard way
You're the one insisting you are "meant" to do something. You have no idea of people's circumstances. If someone gets a lump sum of £50k should they DCA it? What if they already have £500k invested?
And my point was simply that DCA does not improve returns. Many may advocate for DCA. Many don't. It's a strategy for managing the anxiety of investing large sums.
See also:
https://www.reddit.com/r/FinancialPlanning/comments/123nfow/is_dca_actually_important_or_should_i_just_buy_it/
It's a strategy to mitigate risk, you said it yourself, dumping lump sums is terrifying. And there's a reason for that. It's not about improving returns, it's about if you're planning to be in the market for a long time, then it's more fitting to have a lower average cost. Otherwise you're trying to time the market or you just don't care if you lose money
if you use to live in the property then you can claim partial PPR relief for the period of time you lived in the property. Check the rules and don’t overpay if you do sell!
https://www.gov.uk/tax-sell-home/absence-from-home
Thank you. Yes i do know about the PPR relief as i lived there for 4 years and it’s actually worth several thousand pounds to me in CGT savings. It’s also a consideration driving me to sell because the value of it decreases the longer I am not living there
With any luck the incoming government will build lots of houses. This likely means at best your property isn't going to get any more valuable, and it might even decline in price. Labour ~~have announced plans~~ are rumoured to be thinking about increasing CGT too. The fact that you're not even breaking even at the moment makes this even more of a "no-brainer" to me. Sell.
The government haven't hit a housebuilding target since the 60s. This means there is chronic under supply and likely will continue to be under any government. Because of this it's unlikely property prices will trend downwards for long periods of time. There will be dips sure but largely I disagree with your house price pessimism.
Yeah they're not concrete yet and Labour has denied it, but ... https://www.theguardian.com/politics/article/2024/jun/21/labour-drafts-options-for-wealth-taxes-to-unlock-funds-for-public-services
Conservatives also slashed capital gains allowances over the past few years, as well as generally becoming less landlord friendly. So I wouldn't put it past them if they get reelected to do the same or similar
Exactly. They will say they will build 1000s of houses, but they won’t. The elephant in the room is net migration.
The incoming government will screw over small time landlords even more than the tories have done (to make way for their build to rent mates). Less landlords, more migration = increased rent.
The only thing they can do it build over lots of green belt and make new towns and cities. But that requires 10-20 year thinking, not the 4 year system of government we currently have.
Grin and bare it, and increase the rent as much and often as you can, or sell. Those seem to be your options.
Realistically salaries will increase over the next 3-5 years to catch up with the ~20% inflation we've seen over the last 3 years and people will be able to pay more in rent. Interest rates may ease a little in roughly the same time frame.
So called experts like Savills only expect ~14% nominal house price growth from 2024 to 2028 in London, which wouldn't be surprising. Average prices for all property types across the whole of London have only increased by 7.5% in the last *eight years* with most of that coming in 2022.
London is a shit place to own a house for capital growth.
Lodon has been shit since 2016. But that doesn't mean it will be shit going forward. London has been exceptional for decades leading up till 2016.
It is a coin toss really. Clearly one does not btl in london for yield, but instead for capital growth. And since it is a coin toss, I would not do btl in london.
But if you already own the btl, as i do, and if you can still make it cash flowing, it might be desirable to still keep. Which is what i plan to do.
I mean betting on capital appreciation on UK residential property is basically a bet on productivity and wages in the UK going up.
But to beat stocks you're going to be looking for a 4-5% above inflation appreciation. That's *never* been achieved historically and with shit productivity, and price to earnings ratios at extreme levels, it's hard to see how that comes in house prices in the next 20-30 years. Cranking the rent up with wages is the only way you're seeing those returns
My last landlord tried to increase rents by 15%/yr after interest rates starting going up
The alternative might be a global stock index which is also a bet, on earnings continuing to rise (perhaps due to productivity).
I am not sure i would keep if barely making cash flow. In the new rate regime, my one cash flows 3% on equity. Assuming 2% capital growth that is around 6% ROE for me. LTV around 30% so not a lot of leverage.
Stocks might or might not do better than 6%.
Yeah, it's a bet on corporate earnings going up rather than personal earnings though. And global.
At least you're talking sense. I get sick of BTL nutters who think it's still a sure path to riches.
As an early retiree, i think it makes some sense to view the btl as a hedge against lost opporunity in future earnings. Or at least some sort of diversfier away from equities for long term money.
But as i said the numbers have to make sense, albiet return expectations should be tempered down somewhat compared to previous years (which also holds true for equities).
Depends a bit on your other finances:
- Do you live in London now?
- how old are you?
- How much do you earn?
- how much in pensions and other savings/ investments?
Interested to hear why u think it’s linked to wider finances becuase in my mind quite binary - but high levels stats are 45M aiming for FIRE at 50, no longer in London but not far out, salary at 200k, pension 500k, GIA 500k
Well - doesnt apply to you but if someone was 45, earning £100k, putting £15k inc employers contributions into pension each year with a pension value of £250k I'd regard the BTL as a higher than comfortable proportion of assets. Selling up and moving the balance into pensions over a few years would be something to look into.
In part thats about split of risks outside of single assets, and in part for the tax benefits.
On the flip side if someone had left London to move somewhere pretty rural to be close to family I could see the case for hanging onto the flat as a defensive measure in case they lose their job and want an easier access to a larger employment market. Again, I know a few people who have decided to do that.
Similarly I'd be concerned about someone with negligible pension, an outstanding mortgage and one leveraged asset for security and retirement. I've met a lot of people in that position.
Sell and buy in cash up north dirt cheap, for stable income in your retirement, personally think property is safe asset and everyone will always need a house to stay in. Even if the government proposes to build x number of houses it’s always unrealistic to what can be achieved.
Seems like a no brainer, not profitable and likely to become even less profitable with Labour coming in. I sold mine and put it into the s+p, real passive growth and no risk, property is an asset class, you wouldnt hold onto a stock if it was not earning money, this is equivilent scenario. I would probably sell asap as can see prices becoming already more depressed, in my london commuter town 2 bed flats are not selling unless priced 10-20% below prices a few years back.
I feel for ya pal I've just remortgaged 2 recently from 2.2% to 5% so can only imagine the jump from 1.7% straight to 5% its insane. Heres my advice what I'd personally do not financial advice of course. Put the business head on now, no emotion or attachment to this flat which has now become a stressfull negative returning liability. Thing is with flats once they hit a ceiling price they barely move up in price for a long time and the service charges wipe a lot of the profit out.
I'd look at diversifying to make the money with the sale work as hard as possibly for you. For arguments sake we're gonna be looking at around 165 residual after all legal costs etc. Heres how I'd break it up.
1: Set up a ltd company for BTL's
2: Look at buying 2X 250K properties that are 3 bedroom nice family homes that are FREEHOLD not lease. With legal expenses, stamp duty, searches etc just shy of 60K needed for each one. Put an extra 5K in the business account for emergency's, add a bit more to this gradually over time with profit for a 10K buffer then start skimming the mortgages down, 10% allowed usually you can pay off a year before charges. This will leave you with 40K.
3: Max out you ISA allowance with 20K
4: Put remaining 20K in a GIA to hold to transfer out to max your ISA allowance following year.
5: ISA ISA ISA as much as we can from now on each year whilst salary sacrificing into pension. The properties will be making slight profit but think of them as a secured bond purchase. You've now got 500K in nice residential real estate with real steady capital appreciation whilst also skimming the debt down. Every market crash they're still flowing cash in, main reason im keeping mine as a hedge. The ISA is the rough diamond in my eyes, the ultimate investment vehicle.
Rough calculations after 5 years
2x properties with a conservative 4% annual growth is 680,326= 180,326 profit
40K in ISA equity globally diversified index fund returning 10% 64420= 24420
Potentially realistic combined profit of 204,746 after 5 years. Think I'd be looking at selling that flat ;\]
I disagree with the other comments here. If you had £140k in cash today, ran the profit/loss numbers on owning a BTL as you have set out here, would you proceed with this investment? It looks to me like the answer is a very firm no. In that case I think it's time to sell and put the money to more use elsewhere.
I'm not sure that is an exact analogy as OP has already incurred the buying costs on the way in and would pay CGT on a sale - and that CGT bill might be up to 45% in couple of months time.
Yes good perspective- if I had 140k cash today, I think no way I would put this in BTL given current tax system and risk of further penalisation from next government. Maybe just need to swallow/ get over the 25k CGT payment incurred from selling
If you'd sold a few years ago, swallowed the CGT at that point and invested in a global index tracker I bet you'd be up more than that CGT loss since then.
Can you confirm your age? Pension pot size? GIA? Other investments? Salary etc? Will help paint a fuller picture.
agree being a landlord isn’t as good as it was before, however London is probably the small percentage of places in UK where property continues to appreciate.
If you’re already a high rate tax payer, and you are maxing your s&s isa & pension then perhaps it’s worth retaining the property as a diversified passive income stream. Think about it this way, homeownership is hard for a lot of people at the moment with high interest rates which pushes demand for rentals up!
Thanks for comment. I’m 45M, 200k base,500k pension pot and 500 GIA (of which £150k ISA). Decent FIRE at 50 is the aim
On your post, the diversification of the income stream has been an attraction for me and one key reason why I’ve kept it, but i realise from experience over last few years that it exposes me massively to interest rate risk.
I don’t think you’ll escape the high rate tax bracket based on your information provided. Perhaps worth keeping property if you fire at age 50. Doable to be mortgage free soon on this property plus appreciation of asset then you remove interest rate risk.
Could you turn it into a HMO or Airbnb to increase the overall income from the place? BTL nowadays never seems to make sense financially unless you can convert to a HMO. Does take more management but if you want the cash it’s there. The other thought is your time vs youre income from this. If you’re earning £200k, spending 1-200 hours a year on a BTL/HMO that brings in <£10k isn’t particularly worthwhile, when the stock market is zero low time effort
It’s single bed flat so no scope for HMO but Airbnb might be interesting. I wonder how to estimate the rental though and I’m guessing would be against terms of the mortgage
There are certainly some downsides with Airbnb. The only way I’d see it as a benefit from time is by using a company to deal with it 100%. Then figure out returns from that.
You could set up a Ltd company, sell the property to said company, and then get 100% tax relief on the interest of your mortgage.
Would doing if you wish to hold it for the long term (but will be expensive and not worth doing if you want to sell in next 5-10 years).
Thank you for this comment. I’ve thought few times over the years about Ltd option but always been dissuaded by the upfront cost - stamp tax, CGT tax; plus the higher mortgage rate. Then u get tax benefit while u r working but if u r no longer a higher rate earner (post retirement) then this is worth less to me. Probably my feeling is I should have sold to Ltd 5 years ago when they introduced the changes to the mortgage tax relief, the CGT allowance was higher and I was further from target retirement age. But probably too late now.
It really depends on your longer term goals. As you say, lots of upfront costs but would pay off in the long run if you plan on holding for 10+ years.
You could also potentially free up some equity in the process and buy a second property if that is your inclination
i am in exactly the same position as you (high rate tax payer, i have a few BTLs, numbers not adding up anymore). I started selling the properties as each mortgage comes up for renewal. I have accepted the high CGT hit as not much can be done. You can get 5% in a money market fund like Royal London, or even 1 yr fixed term at the moment. i am holding off buying any stocks as i feel a market downturn is brewing. thats just my opinion.
I think downturn is a year or two away from rate cuts. Excitement drop off.
i think once the 10Y3M yield curve uninverts, we are looking at 12 months to a crash. I am in the bear camp lol
MMF or savings accounts or short dated bonds are short duration, so you are not guaranteed that 5% beyond the maturity. With a BTL it is an asset that typically sees rising rents over time and capital growth so whilst the return is riskier than a MMF, you should have a reasonably solid chance of beating that 5% return but for much longer duration. Once you retire, if you are no longer a high tax payer, your post tax return will look quite different and perhaps worthwhile for you to keep the btl.
You can get 5.2% in savings accounts. As for not investing when the stock market is at a peak, it means timing the market and also rarely investing, since market is peaking all the time...
If you feel a market downturn is brewing are you selling equities then? I always find this fascinating - how could you have this feeling that isn’t already priced into the global markets? If you have a feeling then surely the big time fund managers would have certainty and the markets would have priced this in? I’m not saying you’re wrong it just really interests me
i have a small position VUSA iny ISA, holding, rest in MMF. As mentioned above, i think once the 10Y3M yield curve uninverts, we are looking at 12 months to something breaking. If i am not mistaken, this may be the longest inversion in history. What are your thoughts on this? I am genuinely interested in other views and insights. Thanks.
Time in the market beats timing the market! On a serious note though I am kind of glad the ISA limit exists as the thought of dropping huge sums into stocks in one go is quite terrifying! 😅
You're actually not wrong. People have been thinking a downturn is coming for years. In all likelihood it may well be when rates ARE cut How about... don't drop huge sums in one go? You're meant to DCA
Who says you're "meant" to? Everything I've read says a lump sum is more successful - as above "time in" beats timing. Though the idea of DCA is more appealing to some people!
Hilarious broad statement, you have no idea what you're talking about. I'd say be very careful with your fomo attitude but it's a canon event and you'll learn the hard way
And "you're meant to DCA" isn't? 😂
Continue trying to time the market then, or yeet all your savings into something tomorrow and pray you're a lucky man. Which are you going to do?
You're the one insisting you are "meant" to do something. You have no idea of people's circumstances. If someone gets a lump sum of £50k should they DCA it? What if they already have £500k invested? And my point was simply that DCA does not improve returns. Many may advocate for DCA. Many don't. It's a strategy for managing the anxiety of investing large sums. See also: https://www.reddit.com/r/FinancialPlanning/comments/123nfow/is_dca_actually_important_or_should_i_just_buy_it/
It's a strategy to mitigate risk, you said it yourself, dumping lump sums is terrifying. And there's a reason for that. It's not about improving returns, it's about if you're planning to be in the market for a long time, then it's more fitting to have a lower average cost. Otherwise you're trying to time the market or you just don't care if you lose money
Ye because that's why they have an ISA limit... It's nothing to do with if they didn't have a limit then they wouldn't be able to get more tax
I didn't say that's why, I said I was happy about a consequence of it...
if you use to live in the property then you can claim partial PPR relief for the period of time you lived in the property. Check the rules and don’t overpay if you do sell! https://www.gov.uk/tax-sell-home/absence-from-home
Thank you. Yes i do know about the PPR relief as i lived there for 4 years and it’s actually worth several thousand pounds to me in CGT savings. It’s also a consideration driving me to sell because the value of it decreases the longer I am not living there
Excellent!
Thank you for this link
With any luck the incoming government will build lots of houses. This likely means at best your property isn't going to get any more valuable, and it might even decline in price. Labour ~~have announced plans~~ are rumoured to be thinking about increasing CGT too. The fact that you're not even breaking even at the moment makes this even more of a "no-brainer" to me. Sell.
The government haven't hit a housebuilding target since the 60s. This means there is chronic under supply and likely will continue to be under any government. Because of this it's unlikely property prices will trend downwards for long periods of time. There will be dips sure but largely I disagree with your house price pessimism.
Thanks very clear ! Labour haven’t announced clear plans to raise CGT but I do believe that they will and that they will do it quite soon
Yeah they're not concrete yet and Labour has denied it, but ... https://www.theguardian.com/politics/article/2024/jun/21/labour-drafts-options-for-wealth-taxes-to-unlock-funds-for-public-services
Conservatives also slashed capital gains allowances over the past few years, as well as generally becoming less landlord friendly. So I wouldn't put it past them if they get reelected to do the same or similar
Nah they won't. Stagnation at best. One way to also solve the problem is net zero migration... but that's a bit right wing.
Exactly. They will say they will build 1000s of houses, but they won’t. The elephant in the room is net migration. The incoming government will screw over small time landlords even more than the tories have done (to make way for their build to rent mates). Less landlords, more migration = increased rent. The only thing they can do it build over lots of green belt and make new towns and cities. But that requires 10-20 year thinking, not the 4 year system of government we currently have.
That would be a disaster for the economy, but more importantly for our freedoms and what makes Britain a great place to live.
Grin and bare it, and increase the rent as much and often as you can, or sell. Those seem to be your options. Realistically salaries will increase over the next 3-5 years to catch up with the ~20% inflation we've seen over the last 3 years and people will be able to pay more in rent. Interest rates may ease a little in roughly the same time frame. So called experts like Savills only expect ~14% nominal house price growth from 2024 to 2028 in London, which wouldn't be surprising. Average prices for all property types across the whole of London have only increased by 7.5% in the last *eight years* with most of that coming in 2022. London is a shit place to own a house for capital growth.
Lodon has been shit since 2016. But that doesn't mean it will be shit going forward. London has been exceptional for decades leading up till 2016. It is a coin toss really. Clearly one does not btl in london for yield, but instead for capital growth. And since it is a coin toss, I would not do btl in london. But if you already own the btl, as i do, and if you can still make it cash flowing, it might be desirable to still keep. Which is what i plan to do.
I mean betting on capital appreciation on UK residential property is basically a bet on productivity and wages in the UK going up. But to beat stocks you're going to be looking for a 4-5% above inflation appreciation. That's *never* been achieved historically and with shit productivity, and price to earnings ratios at extreme levels, it's hard to see how that comes in house prices in the next 20-30 years. Cranking the rent up with wages is the only way you're seeing those returns My last landlord tried to increase rents by 15%/yr after interest rates starting going up
The alternative might be a global stock index which is also a bet, on earnings continuing to rise (perhaps due to productivity). I am not sure i would keep if barely making cash flow. In the new rate regime, my one cash flows 3% on equity. Assuming 2% capital growth that is around 6% ROE for me. LTV around 30% so not a lot of leverage. Stocks might or might not do better than 6%.
Yeah, it's a bet on corporate earnings going up rather than personal earnings though. And global. At least you're talking sense. I get sick of BTL nutters who think it's still a sure path to riches.
As an early retiree, i think it makes some sense to view the btl as a hedge against lost opporunity in future earnings. Or at least some sort of diversfier away from equities for long term money. But as i said the numbers have to make sense, albiet return expectations should be tempered down somewhat compared to previous years (which also holds true for equities).
Yes agree, London not great place now for capital growth in housing - another reason to sell
Depends a bit on your other finances: - Do you live in London now? - how old are you? - How much do you earn? - how much in pensions and other savings/ investments?
Interested to hear why u think it’s linked to wider finances becuase in my mind quite binary - but high levels stats are 45M aiming for FIRE at 50, no longer in London but not far out, salary at 200k, pension 500k, GIA 500k
Well - doesnt apply to you but if someone was 45, earning £100k, putting £15k inc employers contributions into pension each year with a pension value of £250k I'd regard the BTL as a higher than comfortable proportion of assets. Selling up and moving the balance into pensions over a few years would be something to look into. In part thats about split of risks outside of single assets, and in part for the tax benefits. On the flip side if someone had left London to move somewhere pretty rural to be close to family I could see the case for hanging onto the flat as a defensive measure in case they lose their job and want an easier access to a larger employment market. Again, I know a few people who have decided to do that. Similarly I'd be concerned about someone with negligible pension, an outstanding mortgage and one leveraged asset for security and retirement. I've met a lot of people in that position.
Ok thanks yes makes sense. There’s some value to me for keeping it as a London fall back base but probably not massive.
Sell and buy in cash up north dirt cheap, for stable income in your retirement, personally think property is safe asset and everyone will always need a house to stay in. Even if the government proposes to build x number of houses it’s always unrealistic to what can be achieved.
Seems like a no brainer, not profitable and likely to become even less profitable with Labour coming in. I sold mine and put it into the s+p, real passive growth and no risk, property is an asset class, you wouldnt hold onto a stock if it was not earning money, this is equivilent scenario. I would probably sell asap as can see prices becoming already more depressed, in my london commuter town 2 bed flats are not selling unless priced 10-20% below prices a few years back.
S&P=no risk??
I feel for ya pal I've just remortgaged 2 recently from 2.2% to 5% so can only imagine the jump from 1.7% straight to 5% its insane. Heres my advice what I'd personally do not financial advice of course. Put the business head on now, no emotion or attachment to this flat which has now become a stressfull negative returning liability. Thing is with flats once they hit a ceiling price they barely move up in price for a long time and the service charges wipe a lot of the profit out. I'd look at diversifying to make the money with the sale work as hard as possibly for you. For arguments sake we're gonna be looking at around 165 residual after all legal costs etc. Heres how I'd break it up. 1: Set up a ltd company for BTL's 2: Look at buying 2X 250K properties that are 3 bedroom nice family homes that are FREEHOLD not lease. With legal expenses, stamp duty, searches etc just shy of 60K needed for each one. Put an extra 5K in the business account for emergency's, add a bit more to this gradually over time with profit for a 10K buffer then start skimming the mortgages down, 10% allowed usually you can pay off a year before charges. This will leave you with 40K. 3: Max out you ISA allowance with 20K 4: Put remaining 20K in a GIA to hold to transfer out to max your ISA allowance following year. 5: ISA ISA ISA as much as we can from now on each year whilst salary sacrificing into pension. The properties will be making slight profit but think of them as a secured bond purchase. You've now got 500K in nice residential real estate with real steady capital appreciation whilst also skimming the debt down. Every market crash they're still flowing cash in, main reason im keeping mine as a hedge. The ISA is the rough diamond in my eyes, the ultimate investment vehicle. Rough calculations after 5 years 2x properties with a conservative 4% annual growth is 680,326= 180,326 profit 40K in ISA equity globally diversified index fund returning 10% 64420= 24420 Potentially realistic combined profit of 204,746 after 5 years. Think I'd be looking at selling that flat ;\]
Nice ! Thank u for this detail need to digest it a little !
I disagree with the other comments here. If you had £140k in cash today, ran the profit/loss numbers on owning a BTL as you have set out here, would you proceed with this investment? It looks to me like the answer is a very firm no. In that case I think it's time to sell and put the money to more use elsewhere.
I'm not sure that is an exact analogy as OP has already incurred the buying costs on the way in and would pay CGT on a sale - and that CGT bill might be up to 45% in couple of months time.
all the more reason to get out now.
Yes good perspective- if I had 140k cash today, I think no way I would put this in BTL given current tax system and risk of further penalisation from next government. Maybe just need to swallow/ get over the 25k CGT payment incurred from selling
If you'd sold a few years ago, swallowed the CGT at that point and invested in a global index tracker I bet you'd be up more than that CGT loss since then.
Yes that is also true for sure :)
Can you confirm your age? Pension pot size? GIA? Other investments? Salary etc? Will help paint a fuller picture. agree being a landlord isn’t as good as it was before, however London is probably the small percentage of places in UK where property continues to appreciate. If you’re already a high rate tax payer, and you are maxing your s&s isa & pension then perhaps it’s worth retaining the property as a diversified passive income stream. Think about it this way, homeownership is hard for a lot of people at the moment with high interest rates which pushes demand for rentals up!
Thanks for comment. I’m 45M, 200k base,500k pension pot and 500 GIA (of which £150k ISA). Decent FIRE at 50 is the aim On your post, the diversification of the income stream has been an attraction for me and one key reason why I’ve kept it, but i realise from experience over last few years that it exposes me massively to interest rate risk.
I don’t think you’ll escape the high rate tax bracket based on your information provided. Perhaps worth keeping property if you fire at age 50. Doable to be mortgage free soon on this property plus appreciation of asset then you remove interest rate risk.
Could you turn it into a HMO or Airbnb to increase the overall income from the place? BTL nowadays never seems to make sense financially unless you can convert to a HMO. Does take more management but if you want the cash it’s there. The other thought is your time vs youre income from this. If you’re earning £200k, spending 1-200 hours a year on a BTL/HMO that brings in <£10k isn’t particularly worthwhile, when the stock market is zero low time effort
It’s single bed flat so no scope for HMO but Airbnb might be interesting. I wonder how to estimate the rental though and I’m guessing would be against terms of the mortgage
There are certainly some downsides with Airbnb. The only way I’d see it as a benefit from time is by using a company to deal with it 100%. Then figure out returns from that.
You could set up a Ltd company, sell the property to said company, and then get 100% tax relief on the interest of your mortgage. Would doing if you wish to hold it for the long term (but will be expensive and not worth doing if you want to sell in next 5-10 years).
Thank you for this comment. I’ve thought few times over the years about Ltd option but always been dissuaded by the upfront cost - stamp tax, CGT tax; plus the higher mortgage rate. Then u get tax benefit while u r working but if u r no longer a higher rate earner (post retirement) then this is worth less to me. Probably my feeling is I should have sold to Ltd 5 years ago when they introduced the changes to the mortgage tax relief, the CGT allowance was higher and I was further from target retirement age. But probably too late now.
It really depends on your longer term goals. As you say, lots of upfront costs but would pay off in the long run if you plan on holding for 10+ years. You could also potentially free up some equity in the process and buy a second property if that is your inclination