moving pension pot into property

[coffeeman]

Hi, I have recently retired from work am not drawing my state pension till later this year, I am living on the rent I get from the couple of properties I rent out,
yes am a landlord, I just had an annual statement on my company pension and have to say its not made much 'bonus' for the amount that's in the 'pot' and the amount of quarterly fees the financial adviser and investing companies take from the pot which I have no control over I can see my money 'eroding' over time, I spoke to the HMRC as to the possibility of taking my 'pension pot' and investing it in buying a couple of houses to add to my property portfolio to rent out 'Commercial' and get my pension pot working better for me and I have control over it, HMRC would benefit from it as well from the tax on the rent I get annually, every ones a winner, HMRC say I could do this and told me to speak to my financial adviser, after sending him an email the reply I got was he look into it and says I could lose a lot in paying tax,

Having read a lot on the internet on tax and business with property am a 'Landlord' of a number of properties the HMRC see that as a 'Commercial' business'
Can any one tell me what to expect.

[bd6759]

Can any one tell me what to expect.

Expect from what?

Not many here are able to give financial advice, and those that are will not be able to do so without breaching a number of regulations.

Your IFA works for you. You should dicuss your options with him/her.

[robbob]

Looking at this from a tax point of view the main things is not to proceed blindly ahead cashing in all your pension if the tax result will be something that doesn't suit you or you aren't aware of.
So particularly to the extent that drawing from your pot would put you into higher rate tax for a particular tax year , delaying withdrawal till a later tax year could be of benefit.
The same can apply if you will not be using all your personal in future years by drawing a pot in the full, you could delay some withdrawals to make use of those later tax free allowances. However the fact that you have rental income and will be increasing this makes me think this will not be an issue.

Note this is purely looking at the tax side of things you need to speak to your pension provider / IFA to see if there are particular pension related issues - eg can you even cash in your pension fully flexibly without suffering extra fees?

Having read a lot on the internet on tax and business with property am a 'Landlord' of a number of properties the HMRC see that as a 'Commercial' business'

Not necessarily from the tax side of things it has always been up for discussion where a trade starts but in principle lots of individuals have 3/4/5 investment properties that run on the basic "rental investment income rules" where the income is not deemed to be that of a sole trader.

Practicably speaking as you are reaching state pension age soon even if NI did apply (sole trader) the effect on you would be nothing once you have a clean tax year past retirement age.

PS congratulations on reaching the retirement position - time to enjoy the best you can

[bd6759]

Not necessarily from the tax side of things it has always been up for discussion where a trade starts but in principle lots of individuals have 3/4/5 investment properties that run on the basic "rental investment income rules" where the income is not deemed to be that of a sole trader.

Income from property is taxed under part 3 of ITTOIA, which deals with income from property. It cannot be taxed under part 2 (income from a trade) because part 3 takes priority.

[robbob]

Hello bd6759

Thanks for the clarification to my post which was incorrectly/poorly worded - i was thinking of the class 2ni rules and extending it to tax for some silly reason.

specifically with regard to the class 2 NI side of things only would you agree things are not as clear cut in this regard - the revenue manual has the following to say - this wording does suggest that in some instances for class 2 purposes a "business" could exist and therefore ni could potentially be relevant - hopefully that won't be an issue for the op with their age anyway.

For example, ownership of multiple properties, actively looking to acquire further properties to let, and the letting of property being the property owner’s main occupation could be pointers towards there being a business for NICs purposes.

https://ion.icaew.com/taxfaculty/b/weblog/posts/propertylettingandnationalinsurance
https://www.gov.uk/hmrc-internal-manuals/national-insurance-manual/nim23800

[bd6759]

specifically with regard to the class 2 NI side of things only would you agree things are not as clear cut in this regard

Yes.
Also for matters that are not governed by ITTOIA.

[AnthonyR]

Just to add another thought. And as mentioned above this isn't by any stretch financial advice!

You have two options if you want to use your pension to buy property:
1. Cash in the pension, pay lots of income tax and buy residential with the remainder. All subject to income tax, CGT and IHT.
2. Keep the money in the pension, but move to a provider that will allow you to invest in commercial property. The commercial property is free of income tax, CGT and IHT in the pension. You pay income tax on the income you draw down. Downside is you are capped a £1m value if you want to keep it efficient.