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 Melton Mowbray property market. George
Osbourne, in last years’ Budget, announced pension reforms that come into
effect this April, which will give people with a pension 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. As before, 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old rules, the first 25% can still be withdrawn from the pension pot tax free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 Melton Mowbray are in the order of 3.5%
to 6.5%.
The other aspect of property investment is how property
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 Melton Mowbray is 19 years
and 4 months (its only 18 years 9 months in Grantham and Stamford). If we
roll the clock back 19 years 4 months to November 1995, property values in Melton
Mowbray have risen by 193.7% todate .. 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 (i.e. low yields) in an up
market area which has decent capital growth or, alternatively, another strategy
is to buy properties in not so good areas known to produce a high returns (i.e.
high yields) but low capital growth (i.e. 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 Melton Mowbray property market, what to buy,
what not to buy and where to buy etc etc.
We are holding property investment workshops. Please register your interest by emailing me
on charlotte.baker@belvoirlettings.com or calling 01664 569700.
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