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Building and protecting your wealth

Property vs Pension – Which is Best for Retirement?

The best retirement plans ensure that your finances will support your desired lifestyle. This might include diversifying your savings portfolio, employing a variety of options that are all designed to set you up for life after work. How should you invest?


This article does not constitute advice. Professional advice should be taken prior to acting on any part of it. Your home may be repossessed if you do not keep up repayments on your mortgage or any other debt secured on it.


Two options that you should definitely consider to build your wealth are property and pensions. But if your capacity to save is stretched thin with other commitments, is there a superior choice? If you only have a small amount to invest in your retirement, do you prioritise property or pension?


Property preference

It’s no secret that property investment has enjoyed a long-standing relationship with the British people. Real estate is often revered in our society, living proof of your worth represented by four walls and a roof.  While owning and profiting off property can certainly help you save for your future, the question of whether you should be considering buy-to-let projects for your investments and savings portfolio remains.

It’s easy to see the appeal of property as an investment because there’s the possibility of a significant pay out when the time comes to cash in. The initial investment is really only the cost of the down payment; as long as there are tenants covering the monthly mortgage and any other expenses that might arise, investors can step back and reap the rewards when all is said and done.


But property is not without its drawbacks

This approach can be risky, though. When interest rates skyrocket or something goes wrong that needs excessive funding to be fixed, the return on your investment dwindles.

In terms of tax, any money you earn from rent will be taxed at your highest rate. The buy-to-let business has also been on the receiving end of inconvenient tax changes that have made success even more of a challenge. Higher rate taxpayers now have to pay 28% capital gains tax (CGT) (as opposed to 20% for other assets) and an additional 3% stamp duty has been tacked on for those who own second properties.


More hits are coming. From April 2019, HMRC will require CGT to be paid within 30 days of sale – a shift from the current ruling which allows until the January after the end of the tax year of asset removal.

On top of this, tax relief on higher rate mortgage interest is being eliminated and as of April 2020, only basic rate relief will remain. Wear and tear relief (an allowable claim of up to 10% of the rent on furnished rental properties) has already been done away with. And private residence relief is another outlet that has changed – the amount of time you can claim a property as a private residence reduced from 3 years to 18 months.


Real estate is more of a long-term approach

With property, your money is only available to you once it is sold. That is not ideal for times when immediate cash is necessary, and your profit will depend on the state of the market, plus how quickly you’ll need access to your money – a speedy sale might result in a lower offer.


Pension power

Unlike property, pension savings actually provides plenty of tax breaks. Your contributions merit the receipt of tax relief at your highest rate, you don’t have to worry about any capital gains tax, and there’s also no income tax charged on the funds you deposit.  Plus, when it comes time to withdraw, a quarter of your pot can be taken tax-free, and what remains won’t be subject to inheritance tax once you pass away.

Pensions are set up so that if you die before 75, the remaining savings are tax-free, but if you die after that, your beneficiaries will just need to pay income tax on any withdrawals they wish to make from your account. But when it comes time to retirement, you can easily obtain a lump sum payout as well as a regular income stream.



How we can help

If you need help putting together a financial strategy for retirement, or simply need assistance deciding whether to prioritise property or pensions in your savings plan, we’re here to help.


Looking to plan for your retirement?
Investments | Financial Planning | Retirement | Save Tax | Protection |

Dental & Medical Financial Services have been helping doctors and dentists to build and protect their wealth, whilst saving tax for over 25 years.
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