In a recent article, I mentioned that pension rules are
changing this April. It certainly created a few emails, with people asking
questions about it. Therefore, this week, I want to look a little deeper into
the subject of your pension and the Hampstead property market. George Osbourne,
in last years’ Budget,
announced pension reforms that come into effect this April, which will give people with pensions unprecedented access to their pension pot and the freedom to look for alternatives.
announced pension reforms that come into effect this April, which will give people with pensions unprecedented access to their pension pot and the freedom to look for alternatives.
In a nutshell, after the
6th of April, anyone aged over 55 will be allowed to withdraw all or
part of their pension pot and spend it as they wish. Until now, you were
allowed to take out a quarter of it and were forced to buy an annuity policy
with the rest.
However, my readers always know that I like to tell it ‘as
it is’. There are always two sides to a story, good and bad. Let me tell you
the bad news first. There are some hefty tax implications by taking money from
your pension pot. Now , and as per the old rules, the first 25% can still be
withdrawn from the pension pot tax free but, here is the sting in the tail, if
you take more than a quarter of your pot (25%), anything above that initial 25%
level will be taxed as income. So if you took the whole lot out, the first
25% will be tax free but the remaining 75% will be taxed at your income tax
rate of 20%, 40% (or even 45% if you earn over £150,000 a year) ....... and now the good news!
Under the old scheme, if you bought an annuity, when you
died your annuity normally died as well. You would have no asset to pass on to
your family. Also, the returns from pensions are awful at the moment. The best
rates according to Hargreaves and Lansdown (big wigs in the City) state if you
were 55 years old, the best rate you would get on your annuity pension would be
4.4% fixed for life (so it would never go up) or 2.2% but the payment would go
up with inflation. The sort of rates (also known as yields in the property
investing game) being achieved in Hampstead are in the order of 4% to 6.5%.
The other aspect of property investment is how the fact that
values have risen consistently over the last 50 years. According to the Office
of National Statistics, the life expectancy of a 65 year old male in Hampstead is
20 years and 3 months (its only 16 years 3 months in Tower Hamlets). If we roll
the clock back 20 years 3 months to January 1995, property values in Hampstead
have risen by 575.1% to today .. you wouldn’t have had that with your
pension! But this is the biggest win, even by taking a
hit in income tax now, by buying a property, you buy an asset that you can pass on to
your family when you die.... (or the cats home if they aren’t nice to you!).
So where next? It totally depends which strategy you are
going to look at, one strategy is to look to achieve relatively small rental
returns (ie low yields) in an up market area which has decent capital growth. Alternatively,
another strategy is to buy properties in not so good areas known to produce a
high returns (ie high yields) but low capital growth (ie how much the value of
the property goes up). Now, I am not financial advisor, so cannot offer
financial advice on what the best thing for you with your pension is. However, I
can share my knowledge and experience of the Hampstead property market, what to
buy, what not to buy and where to buy. My thoughts on the Hampstead Property
market can always be found on the NW3 Property Blog www.NW3propertyblog.com
If you are looking for an agent with experience that can help you find the right tenant for your property, then contact us to find out how we can get the best out of your investment property. Email me on chris@ashmoreresidential.com or give me a call on 020 7435 0420. Pop in for a chat – we are based on Ashmore Residential, Suite 7, 25-27 Heath Street, London, NW3 6TR. The kettle is always on.
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