Families to pay an extra £900m Inheritance Tax by 2022
The Office for Budget Responsibility (OBR) has revealed figures which show that the estimated Inheritance Tax (IHT) payable on estates over the next five years is due to rise by almost £1 billion; from £32.4 billion to £33.3 billion.
This rise is due, in part, to a larger population; more people are dying, therefore more IHT is being paid.
However, other research shows that an improved understanding of IHT regulations could result in many people paying less IHT. Currently, the figures show that, due to a lack of knowledge, IHT is being taken from estates which could have otherwise been avoided.
More information needed
A worrying number of people do not know how the assets that they leave behind will be affected by IHT, according to research from WAY Investments. In fact, almost half (48%) described their understanding of IHT as 'not very good' or 'terrible'. Meanwhile:
- 25% did not know whether their assets would incur IHT when they die
- 48% did not know that IHT can be as high as 40%
- 22% did not know that ISAs can be subject to IHT
As well as lacking information and understanding surrounding IHT, many people showed that they are very disorganised where their assets and estate are concerned. When asked if they had made and updated their will:
- 35% admitted that they do not have a will
- 47% of people who do have a will, have not updated it within the past five years
What difference does it make?
The advantages of knowing how IHT will affect your assets should be obvious. If you know how your estate will be taxed, it is easier to make tax-efficient arrangements. That way, you can leave more for your loved ones and lose less to the taxman in IHT.
Similarly, ensuring that you have a will and keep it updated and valid ensures that your estate is distributed according to your wishes. Without a valid will, your assets will be distributed according to complex intestacy laws, which will lead to two things:
- Your assets will not necessarily be given to the people you would choose to benefit from them
- Your assets may be divided in a way which is not the most tax-efficient. This will mean that your loved ones will lose more than is necessary in tax and will benefit less from the savings and property that you leave behind
Avoiding unnecessary IHT
Making sure that you have IHT-efficient plans in place for your estate is better done sooner rather than later. Unfortunately, none of us has a crystal ball, and whilst we would all like to believe that we will live forever, we do not know what is around the corner.
Seeking professional financial advice is the first step toward mitigating as much IHT as possible. We can help you to explore the ways in which IHT will affect you, and find solutions which ensure that your loved ones see the benefits of your legacy.
For more information, please take a look at our free resources on our 'Focus On' page of this website. Alternatively, feel free to get in touch.
Please note:
The Financial Conduct Authority (FCA) does not regulate Tax Planning and Estate Planning.
Putting off taking financial advice could be a costly mistake
Have you ever talked yourself out of seeking professional financial advice?
You are not alone, almost half (49%) of over-50s who are not yet retired have done the same thing. But, with research by Dunstan Thomas showing that those who take financial advice could enjoy £13,000 more each year in retirement than those who don't, it is worth challenging that decision.
Why do people avoid taking professional financial advice?
According to research from Retirement Advantage, cost and trust are the top factors deterring over-50's from seeking professional advice. In a study of people who had yet to retire:
- 42% said that the cost of financial advice put them off
- 31% do not feel that they can trust financial advisers
- 31% do not think that taking financial advice is necessary
- 18% do not think that financial advice will benefit them
- 15% said that they can get the advice they need directly from their pension adviser
Where else do people turn for advice?
Rather than seeking advice from a professional, respondents said that they have, or will, get their information from:
- The internet (44%)
- The Government's Pension Wise guidance service (42%)
- Their pension provider (35%)
- Their employer (18%)
There is a range of great information available on the internet for those who want to understand their finances and options better. However, this information is very generalised and will not be tailored to your own needs and circumstances. The same is true for the Pension Wise guidance service, they are in place to give you the facts, not recommendations.
Consulting your pension provider may seem like a logical decision, but bear in mind that they are a business. As a business, their main aim is to retain you as a customer and ensure that you keep your money in a place where they can benefit from it. That means that they are unable to make recommendations of more suitable products from other providers, as they are restricted to their own range.
Unless they work as a financial adviser or planner, your employer is not qualified to give financial advice.
Is financial advice worth the cost?
In short, yes.
When compared to other sources of financial information, independent financial advice is priceless. Whilst guidance and facts are available in abundance, both online and through guidance services, it does not compete. Financial advisers and planners work to get to know your situation, then suggest strategies, services and products which work both with you and for you, to help you to reach your financial goals.
The advantages of taking independent financial advice include:
- Unbiased information: The advice you receive from an adviser will not be designed to sway you toward a particular provider or products
- Ongoing education: Financial advisers work hard to keep their knowledge up to date. That means that any information they give to you is guaranteed to be correct, whether financial, legal or product-based
- Experience: Your financial adviser will be able to make applications, handle paperwork and communicate with other professionals in a very efficient way. It is common for those who choose to undergo complex financial processes alone to get confused or take longer than those with help
- Protection: As financial advisers are regulated by the Financial Conduct Authority (FCA), you get peace of mind, knowing that you are supported in the event of unexpected issues
It is vital to ensure that you do not view the value of financial advice on the cost alone. Consider the value of an ongoing relationship with a professional who is available to help you to make complex, and sometimes, life-changing decisions when you need them.
If that is not convincing enough, Unbiased.co.uk has found that people who take financial advice boost their assets by £41,099, on average.
For more information and to find out how we can help you, please get in touch.
Budget 2017 first rise in Pensions Lifetime Allowance for seven years
For many people, Philip Hammond's announcement that the Lifetime Allowance will be rising is welcome news.
As part of the Autumn 2017 Budget, the amount you can hold in a pension fund, without incurring taxes, will rise by £30,000; from £1,000,000 to £1,030,000, effective from April 2018. This is a welcome increase, considering that the Lifetime Allowance started at £1.5 million in 2006/7, rose to £1.75 million in 2010/11 and fell to £1 million, where it remained until the budget announcement.
But what does that mean for you?
Understanding the Lifetime Allowance
The Lifetime Allowance is the maximum amount you can hold in your pension, before tax will apply. This includes all forms of pension, including the capital value of any Defined Benefit pension plans.
Your pension is 'tested' against the Lifetime Allowance when certain trigger events occur. These include:
- When you move money into drawdown
- Death
- When lump sums are paid, including those paid in the event of ill health
- If you choose to transfer your pension fund to a qualifying recognised overseas pension scheme (QROPS)
- If your pension increases beyond a certain limit
- In some cases, when you reach the age of 75
If your pension value is above the Lifetime Allowance, the value by which it is over the threshold will be subject to tax at:
- 55% of lump sums
- 25% of pension income
Who will benefit from the increase, and how?
The rise in the Lifetime Allowance will affect most people who are saving, preparing and already receiving, their pension.
For those in the early stages of saving toward retirement, the increase should offer increased possibilities to make the most of your pension funds, in the future, whilst minimising the amount you lose in tax. Of course, the Allowance is not guaranteed to continue rising indefinitely, but this rise does signal an improvement.
If you will be reaching retirement age in the next few years, the rise could not have come at a better time for you. When your funds are crystallised, the total value will be checked against the new, higher rate. This means that you will be able to keep more of the money you have worked hard to save.
For those who are already retired and receiving their pension in some way, the Allowance rise will offer more flexibility in the amount you can access before incurring tax. However, if you have already exceeded the Lifetime Allowance, the rises will not affect you and it is best to seek professional advice to see how you can manage your remaining pension funds as tax-efficiently as possible.
For more information on how this affects you and tax-efficient methods of saving, contact us.
Please note:
The value of pensions and investments and the income they produce can fall as well as rise. You may get back less than you invested.
Levels, bases of and reliefs from taxation may be subject to change and their value depends on the individual circumstances of the investor.
The Great St Helens Cake Off
Beaufort St Helens enjoyed a very successful coffee morning this quarter all in the name of Macmillan Cancer Support. Along with the bakes, there was 'Guess the height of the Cake' competition won by our very own Danielle Kitis and a couple of games of Baking Bingo. All in all, £197.79 was raised for a great cause and lots of fun was had in the process!
Charity begins at Anfield
Great to support the annual Wooden Spoon Charity Dinner which was held at Liverpool Football Club.
Martin Johnson, former British Lions Captain can be seen here with the son of our client, Dave Reed of Ravenhead Laundry Services which is based in St Helens.
Autumn Budget 2017: Everything you need to know
The Chancellor, Philip Hammond rose to his feet at 12.38 to deliver his second Budget of the year.
The days leading up to the Budget have been dominated by talk of housing, Universal Credit and, most surprisingly, rail cards.
Mr Hammond started in a bullish and optimistic mood, saying: I report today on an economy that continues to grow, continues to create more jobs and continues to confound those who seek to talk it down. He then turned to Brexit, saying that the UK will be prepared for every possible outcome of the current negotiations.
As convention dictates, the Chancellor then moved on to the latest economic data and forecasts for the years to come.
The economy
The Chancellor confirmed that:
- Gross Domestic Product (GDP) has been substantially revised down, and is now predicted to grow by 1.5% in 2017, 1.4% in 2018, 1.3% in 2019 and 2020, 1.5% in 2021, 1.6% in 2022
- Inflation, as measured by the Consumer Prices Index (CPI), will peak at 3% in this quarter, while the Bank of England's inflation target will remain at 2%
- Borrowing will continue to fall in years to come, to reach its lowest level in 20 years in 2022 / 23 when it will be £25.6 billion. This year, borrowing is predicted to be £49.9 billion; £8.4 billion lower than forecast in the Spring Budget
He then moved on to a raft of announcements.
Research and Development (R&D)
Mr Hammond said: "We are allocating a further £2.3 billion for investment in R&D (research and development) and we'll increase the main R&D Tax Credit to 12%."
Tech businesses
The Chancellor said that a new tech business is founded in the UK every hour; he said he wanted that to be every half hour.
To help achieve that aim, Mr Hammond unveiled a range of measures, including a new public fund and an improvement in EIS (Enterprise Investment Schemes) tax-relief for investments made into 'knowledge intensive' companies.
Cars
It was announced that people who drive an electric car, and charge it at work, will not face benefit-in-kind tax charges. Furthermore, a £400 million charging infrastructure fund was also unveiled.
Older diesel cars will face higher road-tax. Although Mr Hammond was keen to point out that no white van man or white van woman will have to pay the increase.
Environment
Referencing the BBC's Blue Planet programme, Mr Hammond announced that the Government will explore new taxes on plastic waste.
Education
Mr Hammond announced measures to promote maths teaching in schools, including a £600 payment to schools and colleges for each child who studies A-Level or core maths.
Universal Credit
Mr Hammond said that Universal Credit was a necessary and long-over due reform, where work always pays and people are supported to earn.
However, he went on to announce several key changes:
- The seven-day waiting period will end
- The system will change so that households can get an advance for a full months' payment within five days
- People claiming an advance will now have 12 months to repay it
Mr Hammond said this was a £1.5 billion package to help people with the change to Universal Credit.
National Living Wage
The National Living Wage, for people aged 25 or over, will increase from £7.50 to £7.83 from April 2018; a £600 per year rise for full-time workers.
Income Tax
Mr Hammond announced that from 6th April 2018 the Personal Allowance, the amount which can be earned before income tax is paid, will rise to £11,850 from £11,500 in the current tax year .
The higher-rate tax threshold will also rise to £46,350 from the same date.
No changes were announced to the rates of Income Tax.
Alcohol & tobacco
Duty will be frozen on wines, spirits, cider (except white cider) and beer.
The cost of tobacco will rise by inflation, plus 2%.
Travel
A new railcard for people aged 26 - 30 will give a third off rail fares.
The Chancellor also announced that the scheduled rise in fuel duty, due to take effect in April 2017, will be cancelled.
Also, short-haul Air Passenger Duty will be frozen. However, there will be an increase on premium class tickets and private jets.
NHS
Mr Hammond spoke of the Government's commitment to the NHS.
He then announced an additional £10 billion of capital investment, as well as £2.8 billion, day-to-day funding over next three years.
Corporation Tax
The Chancellor announced no changes to the rates of Corporation Tax.
Business owners
Mr Hammond said: "There is a case now for removing the anomaly of indexation allowance for capital gains - bringing the corporate system into line with personal capital gains tax. I will therefore freeze this allowance."
This measure will increase the tax bills paid by people selling their business.
Pensions
Despite the usual speculation, and for the first time in many years, the Chancellor announced no significant changes to pension legislation, tax-relief or allowances.
There's no doubt that will come as a relief to those people using pensions to plan for their retirement.
VAT (Value Added Tax)
Despite pre-Budget speculation, the Chancellor announced that the VAT threshold will remain frozen at £85,000 for the next two years.
However, a consultation on the structure of VAT was also announced.
Small businesses
The way in which business rates are increased each year will change.
From 2018, they will now rise in line with CPI (Consumer Prices Index) and not RPI (Retail Prices Index) saving £2.3 billion.
Housing
In perhaps the largest section of his speech Mr Hammond said: Getting on the housing ladder is not a dream of your parents' past but a reality for your future.
He then outlined some of the Government's accomplishments, but was clear that there is more to do to increase house building and help younger people onto the housing ladder.
Mr Hammond announced a £44 billion package of funding, loans and guarantees to help the housing market.
He also announced local authorities will now have the power to charge a 100% Council Tax premium on empty properties.
Finally, new measures to combat homelessness and rough sleeping were also announced.
First time buyers
The Chancellor announced that, from today, Stamp Duty will be abolished for all first-time buyer purchases up to £300,000.
To help first-time buyers in high price areas no Stamp Duty will be payable on the first £300,000 on property purchases up to £500,000. This is a stamp duty cut for 95% of all first-time buyers who pay stamp duty.
Here to help
If you have any questions about today's Budget please call us on the usual number; we are here to help.
Autumn Budget 2017: Were you a winner or a loser?
Every Budget has winners and losers; with some people faring better than others.
So, how did you fare? Read on as we reveal whether you are a winner or a loser after Philip Hammond's second Budget of 2017.
Winners
First-time buyers
Those buying a home for the first time will now benefit from the abolishment of Stamp Duty on homes up to the value of £300,000. To ensure that this can help first-time buyers in high value areas, such as London, the first £300,000 will be exempt from Stamp Duty on homes above this value to a maximum of £500,000.
The Chancellor said that this would mean: A Stamp Duty cut for 95% of all first-time buyers who pay Stamp Duty.
Under 30s who travel by train
The 16-25 railcard will now be available to people aged up to 30. The so-called 'Millennial Railcard' will be available next year, and will offer savings of up to a third off non-peak fares.
Whilst the railcard won't provide savings for regular commuters travelling in peak times, it will benefit people travelling at less busy periods.
People claiming Universal Credit
Measures will be put in place to support those claiming Universal Credit, such as the removal of the seven-day waiting period for benefit claims. This means that benefits will be paid on the day of the claim, giving families access to money for rent payments. Advances will also be able to be applied for online, and the repayment period for advances will increase from six to 12 months.
Any new claimant in the receipt of housing benefits will continue to receive them for two weeks, meaning that benefits aren't lost in the crossover period.
People earning the National Living Wage
The National Living Wage will be increased by 4.4%, rising from £7.50 per hour to £7.83 per hour. This will take effect from April 2018.
Taxpayers
From April 2018, the tax-free Personal Allowance will be increased from £11,500 to £11,850.
The higher rate threshold will be increased from £45,000 to £46,350.
People saving into pensions
For once we had a Budget where no changes were announced to pension tax-relief or allowances.
Drinkers
The duty on ciders (except white cider), wines, spirits and beer will be frozen, meaning those buying alcoholic drinks will see no price increase next year.
Air passengers
From April 2019, short-haul Air Passenger Duty rates and long-haul Air Passenger Duty rates will be frozen. This will be paid for by an increase on Premium class tickets and private jets.
Drivers
The scheduled fuel duty rise for both petrol and diesel vehicles in April 2018 has been cancelled. This is expected to save a typical driver £160 per year.
Small businesses
The VAT threshold for small businesses has been maintained for the next two years at £85,000.
A planned business rate switch from RPI to CPI has been brought forward by two years, to April 2018. This is expected to reduce the burden of business rates by an extra £2.3 billion.
Pubs
A £1,000 business rate discount will be made available to pubs with a rateable value of less than £100,000 for one more year, to March 2019.
Homeless people in the West Midlands, Liverpool and Manchester
A £28 million pilot scheme will aim to tackle the problem of people sleeping rough in the West Midlands, Manchester and Liverpool.
House builders
Over the next five years, £44 billion in capital funding, loans and guarantees will be allocated to deliver 300,000 new homes per year. This includes £1.5 billion to help smaller firms build more houses.
GCSE computer science students
The number of trained computer science teachers will be tripled to 12,000, with the aim to place a fully qualified GCSE computer science teacher in every secondary school.
Anybody charging their electric car at work
A new £540 million charging infrastructure fund will support the growth of electric cars. This will provide more charging points, especially at places of business.
New tech businesses
£20 billion of new investment has been unlocked for UK-based businesses in the technology sector. This consists of a new fund of £2.5 billion that has been allocated for emerging UK businesses, designed to replace European investment funds post Brexit.
Losers
Economy
The Chancellor started his speech by revealing a series of forecasts showing growth in the economy is expected to be significantly lower than predicted earlier in the year.
Diesel car drivers/ businesses
Drivers of diesel cars, which do not meet the latest pollution standards, will see their Vehicle Excise Duty (VED) rise by one band in April 2018.
The existing diesel supplement in company car tax will rise by 1%, the proceeds from which will be used to create a new £220 million Clean Air Fund.
Premium and private air travellers
Increase in prices for premium and private air travel to compensate for a freeze on duties for short-haul air passengers and long-haul economy air passengers.
Employers
The National Living Wage for those aged 25 and over will rise by 4.4% to £7.83 per hour from April 2018.
Smokers
The duty on tobacco, hand-rolled tobacco and the minimum excise duty on cigarettes, which is due to be introduced in March, is set to rise by 2% above the Retail Price Index (RPI) inflation.
People selling their business
Freeze for indexation allowance on Capital Gains Tax. Companies will receive relief until January 2018.
Empty property owners / investors
Local authorities will be given the power to charge a 100% council tax premium on empty properties.
Here to help
If you have any questions about today's Budget please call us on the usual number; we are here to help.
Interest rate rise: How will it affect you?
It's taken more than 10 years, but it's finally happened.
The Bank of England has decided to increase interest rates with the Monetary Policy Committee (MPC) voting by 7-2 to increase base rate from 0.25% to 0.5%, principally in response to inflation hitting 3%.
The rise was modest, not that you would have thought so from the acres of coverage it got, and only takes rates back to where they were in August last year. However, with inflation stubbornly above target, it is probably a sign of things to come.
As the hysteria dies down, it's only natural to ask: how will this affect you? And, when can we expect further rate rises?
How will you be affected?
Homeowners with a variable rate mortgage: If you are one of the 3.7 million (Source: Bank of England) people with a mortgage arranged on a variable or tracker rate, you can expect to see your payments rise.
Over the coming weeks your bank or building society will be in touch to let you know how much more your mortgage will cost each month.
Homeowners with a fixed rate mortgage: Those people with a fixed rate mortgage won't be immediately affected by the rate rise. However, when their current mortgage deal comes to an end, the products available will reflect this, and any subsequent increases.
People with unsecured debt: The increase of 0.25% is relatively insignificant compared to the interest rates charged on some unsecured debt, especially credit cards and payday loans. Furthermore, the average interest rate charged on a personal loan is just 3.7%, half that of 10 years ago (Source: BBC).
However, it should serve as a wake-up call for those people with large amounts of unsecured debt; with further rate rises expected, now is probably the time for consumers to consider reducing their indebtedness.
Savers: Mark Carney, the Governor of the Bank of England, made it clear he expects the rate rise to be passed on to savers in full. However, such a modest rise will do nothing to bring a real return, where the interest rate exceeds inflation, any closer for savers.
Future pensioners: Although less popular than in years gone by, anyone planning to use an Annuity to turn their pension into an income can expect rates to rise slightly as a result of the increase to interest rates.
When can we expect further rate rises?
Mark Carney isn't known for the accuracy of his crystal ball. However, he believes interest rates will have to rise twice more over the next three years.
The uncertainty over Brexit, inflation and the wider economy means this prediction must be treated with some scepticism. However, it's clear that if inflation continues to remain above the Bank's target of 2%, interest rates will have to rise further.
No need to panic
The increase of 0.25% is modest and won't, immediately at least, affect anyone with a fixed rate mortgage.
However, there's no doubt it's symbolism or that it is potentially a sign of things to come. That means mortgage borrowers, many of whom will have never seen an interest rate rise, should start to prepare for future rate rises.
If you are considering your mortgage and lending options in light of this rate rise, Beaufort Capital Solutions is a new, dedicated financial solutions service, designed for the exclusive use of Beaufort Group partners and professional connections; providing assistance across a vast range of financial requirements for clients; from residential, to commercial, to business finance - on an advised or referred basis.
For more information, please visit: www.beaufortcapitalsolutions.co.uk
80% of people don't know what they want to do in retirement. Are you one of them?
With the State Pension Age being nudged back further and further, many people would be forgiven for thinking that they will never retire.
For most, though, retirement will eventually arrive, and those who want to thrive will need to be prepared. Research suggests that eight in 10 people don't know how they want to spend their retirement, revealing a lack of proper planning and preparation for the later years in life.
Many will have hopes and dreams of living near the seaside, or travelling to places afar. Whilst these both sound like excellent ways to spend retirement, exactly how can this be done? And how early should you be planning for retirement?
Bucket list
Though it might have a slightly morbid name, a bucket list is a great starting point for planning your retirement. What have you always wanted to do?
Common pursuits on a bucket list may be grand and ambitious, such as:
- Visiting exotic places, such as Machu Picchu, the Galapagos Islands or Easter Island
- Learning to play a musical instrument, or speak a new language
- Taking up a hobby, such as golf, skiing or horse riding
Others may be more modest, but equally as important, providing it makes you happy. These can be simple pleasures, such as:
- Spending time with family
- Helping with childcare
- Visiting old friends
Of course, the list is literally endless. Retirement is different for everybody, but there should be one recurring theme; doing what you want to do.
Working hard for a lifetime, only to struggle financially in retirement is nobody's idea of fun. So how can you ensure that you have enough money to tick some of the things off your bucket list?
The answer is easy; financial planning.
Making a plan
A financial planner is a type of adviser that helps people achieve their (often long-term) financial goals. This is done by getting to know their client, working out what is truly important to them, and ensuring that they are on the right path to achieve their goals.
Financial planners can allow you to plan various points ahead, using cash flow forecasting tools to show you directly how certain actions and expenses in the future may affect your savings, income and other personal finances. This can be invaluable, protecting you from financial difficulties in the future if you are thinking about helping family members out with things such as house deposits, or giving gifts.
Once you have worked out where you are financially, and where you'd like to be, a financial planner can help you to get there by advising you on a number of things, such as:
- Pensions
- Investments
- Taxes
- Estate Planning
- Savings
When you finally retire, this planning pays off, resulting in a happy retirement (or, going back to the bucket adage, more things ticked off your list).
How valuable is advice?
Not many people feel prepared for retirement. This is arguably due to a combination of not knowing what to do once it arrives, and feeling like it's too far away to worry about.
Taking professional advice can ease these feelings; ideally sooner rather than later. In fact, research from Unbiased shows that the earlier the age when first seeking advice, the more prepared for retirement the person is, with:
- 71% of 18-24 year olds feeling well prepared
- 52% of 25-34 year olds feeling well prepared
- 41% of 35-44 year olds feeling well prepared
- 39% of 45-54 year olds feeling well prepared
It doesn't just stop at feeling more confident about retirement. On average, people who work with financial advisers boost their assets by £41,099 (Source: International Longevity Centre), allowing far more to be done in retirement.
For more information about making the most of your retirement, please get in touch using the phone number at the top of the page.
Should you invest in Buy to Let when you retire?
New research from Retirement Advantage shows that 13% of over-50s are considering investing in Buy to Let when they finish working. Resulting in a potential surge of 1.3 million new landlords across the UK.
Why the sudden interest in property?
22% of 50-somethings who are adding property investment into their retirement plans are doings so because they already have experience as a successful landlord. Meanwhile, almost one in five (18%) have an underlying interest in property and believe that they would enjoy the challenges and processes involved in being a landlord.
Many people who are planning to retire within the next 10 - 15 years are worried that their retirement fund and pension pots simply will not be big enough.
Research shows that the state pension provides £5,177 less, per year, than the average couple of retirement age require for a decent quality of life.
Why Buy to Let?The main reasons for investing i
n Buy to Let in retirement are:
- Bringing in a regular income and potential for capital growth (50%)
- Boosting income in retirement (44%)
- Belief that investing money in property is safer than stocks and shares (36%)
- Property provides better returns than a pension fund or savings account (35%)
Things to consider before investing in BTL
Like all financial decisions, there are a range of factors to consider seriously before jumping headfirst into becoming a landlord with a Buy to Let mortgage in retirement. These include:
Buy to Let disadvantages
Though the companies trying to sell mortgages tend to downplay them, the Buy to Let scheme does have disadvantages and may not always work out the way it is intended to. These pitfalls include:
- Falling property prices: Property value is not guaranteed to increase. In fact, between 2007 and 2008, the average UK property price fell from £183,959 to £149,907, according to the Nationwide House Price Index
- Increased Stamp Duty on additional property purchases. In 2016, legislation was introduced which saw Stamp Duty Land Tax (SDLT) on non-main residency properties increase by 3%.
Lifestyle changes
Becoming a landlord is a big change for those with no prior experience in the industry. There are careful considerations to be made, including who will carry out the property management duties. You may choose to do this yourself, but it can be difficult to be available around the clock and hiring a professional or maintenance team may be more effective.
Income instability
Unfortunately, you cannot guarantee that your property will be continuously rented. Although you can hope for the best, you will need to have a plan in place in case the property is empty for a few months - this includes both maintaining the property and manging your personal budget without the income from rent.
Unoccupied properties are not the only concern however. Property value fluctuations and a sudden need to sell the property to free up capital can both bring about huge amounts of stress and uncertainty, so be sure to consider all aspects before making any rash decisions.
Primary funding
One of the earliest considerations is where the initial investment money is going to come from to fund the purchase. You can make use of the new Pension Freedoms to access your retirement savings and pension funds from the age of 55, but you need to have a plan in place to cover your future financial needs, should the property decrease in value and leave you with no income or savings to live on.
It is important to note that taking large amounts of money from your pension fund will incur large taxes.
Policy changes
Recently, Stamp Duty has been increased for those purchasing homes in a landlord capacity. Now, all additional properties are subject to an additional 3% liability. When combined with the existing costs of purchasing property, including mortgage fees, interest, insurance and repairs, the true cost of becoming a landlord can be much higher than first anticipated.
Investing your pension in Buy to Let may not be the best option for you. Many see it as a quick way to access a steady income, without contemplating the full effects of the decision.
In reality, investing in Buy to Let is more of a business opportunity than an investment.
To discuss the more viable ways to boost your income in retirement, contact us on the phone number above.