The start of the calendar year is always a good time to assess finances. It gives businesses and individuals two to three months to seek and implement expert finance advice.
In recent budgets the government has looked to remedy:
- Low homeownership amongst young people (those that are in their 20’s and 30’s)
- Rich retirees (over 55’s that own their own property or properties and have income from pensions and other investments)
- Business start up and running costs (with additional help for tech companies and city-based firms where a Local Enterprise Partnership sits)
- Low income (particularly for young people and working families).
In other words the remedies are far reaching, they impact allowances and tax for all age groups and income types eg PAYE, self-employed, pensionable and business owner; we urge individuals to seek advice from their IFA.
Low homeownership – budget changes
New Help to Buy ISAs were launched in April 2016 to help first time buyers save for a mortgage deposit. The Help to Buy ISA differs from other ISAs because the government will add a 25% cash bonus on savings between £1,600 and £12,000 to help first time buyers save more.
Help to Buy ISAs explained:
- First time buyer definition: A UK resident aged 16 or over who has never owned or had an interest in a residential property, either inside or outside of the UK, whether it was bought or inherited
- First time buyers can save up to £1,200 in the first month, and then £200 per month after that
- The £200 per month saving investment can be topped up if missed, but cannot equal more than £2,200 in the remaining 11 months
- The State adds 25% tax free to whatever is in the ISA when you use it for a deposit. There are two exceptions to this: there must be a minimum of £1,600 in the ISA, and, the maximum the State would add would be £3,000 tax-free on a £12,000 ISA. If the ISA is worth more than £12,000 it can be kept as a savings account
- The current scheme will pay out as described until December 2030 and is available as described until the end of this tax year.
This is good news for first time buyers, and parents or grandparents that may want to help offspring get onto the property ladder. The Help to Buy ISA can be contributed to by groups of people. UK Mortgage lender the Halifax recently reported the highest first time buyer’s homeowner figure (at 335,750) in nine years, and they report that this trend is running on into 2017.
At the other age-end of the spectrum rising house prices are catching out some property owners.
Inheritance Tax Planning
In 2015/16 HM Revenue and Customs (HMRC) took a record £4.6 billion in inheritance tax (IHT); which represents a 21% increase from the £3.8 billion that was taken in 2014/15. Despite the threshold for IHT being fixed since April 2009 at £325,000; increases in London and Southeast property values are causing more individuals to get caught by the tax. The government has new plans to introduce a higher probate fee for properties valued at over £2million. The fee was £215 but will become £20,000. This heralds the start of tiered probate fees that will keep pace with rising property values.
Individuals could consider products such as Investment Savings Accounts (ISAs) or Enterprise Investments Schemes (EISs) when Inheritance Planning, we would recommend seeking expert advice from an IFA.
Mortgages for the over 55’s reach a 10 year high
2015 to 2016 is a record year for Equity Release or lifetime mortgage applications. Lending reached a 10 year high with over £198m in mortgages agreed between the first halves of 2015 and 2016, according to the Equity Release Council (ERC). Figures from the ERC show a record number of drawdowns (76%) on lifetime mortgages, to access housing wealth. The growth of equity release product choice for over 55’s mortgages is at 34% Year-on-Year, and has positively impacted pricing. Housing and property wealth is used to fund better lifestyles and home improvements to support retirement planning for people, who are typically aged, 56 to 74 years’ old.
However in efforts to curb rising house purchase and house rental prices; new measures effecting second homeowners were introduced in April 2016 and are being sustained into April 2020.
Landlord Tax effective from April 2017
- Tax relief on mortgage interest rates that are used to finance second homes is to be restricted to the basic rate of tax over four years to April 2020 commencing April 2016.
- Stamp Duty for buy-to-let properties is to be paid at the standard rate with an increase of 3% points on each Stamp Duty band.
Retirees pension pot reinvestment budget changes
New limits are to be placed on the reinvestment of pension pot savings. The new tax-free allowance falls from £10,000 to £4,000 in April 2017, affecting all of those who would wish to take money from their defined contribution pension pot.
Higher rate tax relief for people with incomes over £150,000 per annum has been curtailed since 2009 and fell to the annual allowance (AA) of £10,000 in tax year 2016-17. In addition Lifetime Allowance (LTA – the total amount you can hold within your pension without paying tax) fell to £1,000,000 in tax year 2016-17.
A new savings bond, with an interest rate of about 2.2% will be launched through National Savings and Investments. The bond will be available to those aged 16 and over, where a minimum investment of £100 and a maximum investment of £3,000 has been set. Savers must invest for three years. The new product will be available for 12 months from spring 2017.
Contact MarchwoodIFA to speak to one of our expert finance advisors: 01243 532 635