‘I work, have a buy-to-let and a £650k pension – but how do I make ends meet?’


Henrietta Grimston, chartered financial planner at Evelyn Partners

Mr Brooks has taken his tax-free cash from his pension and has the balance in a drawdown scheme with Royal London. Most financial advisers say a safe rate of withdrawal is 4pc a year, but this is usually based on American research. For a British investor, studies have suggested that a more conservative figure of 2.5pc should be used.

The income shortfall Mr Brooks has today, while he is still working, represents a withdrawal rate of just 0.8pc of the value of his pension, which should be comfortably ­sustainable. By the time he stops work he should be receiving his state pension; he should review his position again then.

With regard to their property, if Mr and Mrs Brooks were to continue renting, it would allow them the flexibility to move as and when required. However, there would always be the cost of the rent, as well as the risk of being asked to vacate the property.

There are some practical considerations in relation to their buy-to-let property, as they depend on it to supplement their income. They still have outstanding mortgage debt and the current term is due to end in 2026.

The Brookses have not decided what to do in terms of repaying the capital, but it is certainly easier these days to secure mortgage debt in retirement and there are companies that specialise in providing advice in this area.

This would allow them to defer the repayment of the mortgage, giving them more time to decide on their long-term property plans and to continue receiving rental income. It would also avoid the need to take capital from the pension to repay the mortgage, which would trigger income tax on the withdrawal.

The alternative is for them to buy a new home. With limited capital at their disposal outside the pension, and with the existing mortgage debt against the Sussex property, it is likely they would need to consider selling the Sussex home. While the Sussex home was once their main property, which usually qualifies for private residence relief on capital gains tax, on the sale there would be an assessment for CGT for the proportion of time it has been rented. There would also probably be stamp duty to pay on the purchase of a new property.

Joshua Gerstler, chartered financial planner at The Orchard Practice

In relation to the house move, Mr Brooks should consider buying rather than renting. Over the long term, property has been a good investment and hopefully the value of the home will continue to rise. Mr Brooks could comfortably afford to buy a two-bedroom home outright for £250,000. On this basis, he would be able to retain the rental property in Sussex and continue to benefit from the rental income.

From an inheritance tax perspective, Mr and Mrs Brooks would benefit from the “nil-rate band” – the IHT-free allowance – of £325,000 each.

They can also use the additional ­“residence nil-rate band”, the ­family home allowance, of £175,000 each, which applies when property is left to direct descendants, in this case their two sons. As a couple they will have £1m of assets free from inheritance tax.

Most pensions will sit outside the estate. This means they should be excluded from any inheritance tax calculation and should be able to pass on their home to their two sons without paying any tax at all.

Overall, despite the difficulties that Mr and Mrs Brooks went through with the pub, it looks like they are in a good financial position and should eventually be able to pass on their wealth to their sons with little difficulty.

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