This is part two of our ‘Pension or Property Investment’ article. To read part one, click here.
Pension or Property Investment: Some Considerations When Investing in UK Property.
‘Let’s first look at some of the difficulties involved with becoming a UK expat buy-to-let investor. One hot topic of discussion in recent times has been the new legislation meaning that buy-to-let landlords can no longer offset mortgage interest against tax. Further, buy-to-let investors have to pay an extra 3% stamp duty and overseas buy-to-let investors will have to pay a further 2% surcharge on top of this. This obviously makes investing in UK property more expensive for UK expats and foreign nationals.’
However, there are ways to mitigate the effects of these difficulties. One such way is to incorporate the property as part of a limited company or special purchase vehicle. This way, any extra costs can be offset against tax. Further, mortgage interest will count as a legitimate business expense so there will be no limit to the tax relief for mortgage interest.
‘Another thing you need to think about when deciding between a pension or property investment as a UK expat or foreign national is that you’ll need money up front to buy an investment property. A pension only requires periodic contributions. Of course, if you have surplus income which you have saved, putting your money into property could be an excellent alternative to a savings account, regardless of whether or not you have a pension. This is because you’re almost certain to have your savings appreciate more than they would from the interest rates currently available in a savings account. Bear in mind that most lenders will require a minimum 10-25% deposit so, once you’ve decided your savings goal, you can calculate the required deposit amount accordingly.’
Lastly, it’s important to be aware of some of the additional costs that can come with property investment. These can include broker fees, surveys, solicitors’ fees and building insurance. A more comprehensive list of considerations can be found here. Other hidden costs can come after you have purchased the property – such as long void periods or problem tenants – and these can be harder to deal with or account for. However, doing your research and buying the right property in the right area for your particular target audience will help to limit the possibility of these occurrences.
As always, talking to an expert UK expat mortgage broker will help to navigate some of the pitfalls of property investment and maximise the profitability by allowing you to find the right mortgage product for your needs.
Pension or Property Investment: Pros of Investing in UK Property.
The pros of investing in UK property as a UK expat are much discussed. For one, the asset class is typically considered to be relatively safe and stable. UK property has historically always appreciated over the term of the mortgage too so putting your money in bricks and mortar can be considered to function similarly to an excellent savings account.
You are also likely to profit in a number of different ways from property investment, with rental yields providing you an income on a monthly basis and capital growth contributing to the long-term profitability of the investment. ‘The UK housing market just continues to grow, pointing to the fact that if you invest in UK property, you’re bound to make strong returns. The average price of a UK home has just hit a new high of £230,700 – 30% higher than in 2007. Other reports show that 1 in 5 UK homes appreciated by more than the average UK salary in the last twelve months. These massive gains in value are case in point of why property investment is so popular for UK expats and a legitimately viable alternative to a pension. Property investment can quickly pay dividends – as is evident from the price rises in the last 12 months – or, if you decide to invest long-term, then property can contribute to your salary while saving for your retirement at the same time. This is one huge benefit of property investment over a pension.’
‘Pensions can be considered to be a one-dimensional savings vehicle – they save for the singular purpose of providing a comfortable retirement. However, property can provide a multi-faceted savings vehicle. The money you make from property investment on a monthly basis can be used to pay for whatever you want. The bulk of your retirement savings would be in the property itself and can be ‘cashed in’ whenever you like by selling the property – another advantage over pensions which can only be taken once you reach a certain age.’
As mentioned earlier, investing through a limited company or special purchase vehicle is an option that would further increase both the profitability and flexibility of your investment. By doing this, you can keep the profits from your investment within your company and use this money to purchase more properties and thus grow the value of your retirement pot. You can also offset expenses against tax as well as paying a lower rate of tax on your income – 19% corporation tax instead of higher rate income tax of up to 45%.
Pension or Property Investment: Summing Up.
‘The figures speak for themselves’ says Stuart Marshall. ‘Ultimately, with so many older UK expats without a pension, property investment is the best way to save for retirement, especially if they intend to return to the UK in later life. By investing in the right growth area, you can subsidise your salary and contribute to a viable alternative to a pension. With UK property predicted to grow in the way that it is, property investment should be considered even by those UK expats and foreign nationals who have pensions.’
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