Archive for the ‘Finance’ Category

Want To Pay Less Tax? Ideas To Help Reduce The Amount You Pay

Friday, July 24th, 2015

lesstaxPaying tax is an onerous duty and one we all wish we didn’t have to do.

Judging by recent newspaper headlines, it seems that if you are rich and famous tax avoidance is almost compulsory.

Whilst actual tax evasion is illegal (ie stashing it under your mattress), tax avoidance is not, it is simply the practice of being savvy with your money to limit the amount it can be taxed within the law.

This quick guide will talk you through some of your options if you are looking to reduce the tax burden on your personal income. If you ever wonder: ‘how can I reduce my tax bill?’ this guide is for you.

How To Pay Less Tax: The Obvious Methods

The government already provide a generous annual entitlement to every UK saver in the form of ISAs. If you open and Independent Savings Account, you will be able to deposit £15,240 tax free each year.

This means that any interest earned on the money invested is yours, tax free.

As well as paying into an ISA, the more of your income that you put into a private pension, the less of it can be taxed.

You can be eligible for tax relief on pension contributions of up to, the lower of; 100% of your earnings or £40,000 annual allowance, making it one of the most important means of limiting your exposure to taxation.

If you smoke, drink to excess and drive a gas-guzzling car, then you are making life easy for HMRC.

By giving up these vices, you not only make yourself far healthier and protect the environment, but you also prevent yourself from losing money through indirect taxation like VAT.

If you are married, you might want to take advantage of the new rules that allow you to transfer your tax allowance to your partner or vice versa. If your partner pays a lower rate of tax than you do, transfer or ‘gift’ them an amount of savings that come up to their personal allowance threshold.

How To Pay Less Tax: The Less Obvious Methods

If you are a parent with young children you can avoid paying taxation on £55 a week by investing in the government’s child care vouchers, if your employer is enrolled in the scheme. This allowance is allocated to each parent and therefore a couple can buy £110 a week of vouchers.

By diverting your income into the vouchers, you can avoid income tax and NI contributions being levied on the sum and have the full amount to buy child care with.

This means that most tax payers on basic rate can save a maximum of £930 per year on income tax and NI.

Another way of protecting your income from taxation is through renting out part of your property. The government’s Rent a Room Scheme has a tax threshold of £4,250 per year.

You will need to charge at least that amount to a tenant per year before you have to pay any tax at all, making room rental an attractive means of tax free income generation.

Getting Some Guidance

This list of tax benefits is by no means exhaustive and it is simply there to show that you don’t need Take That’s accountant to simply be sensible with your finances and to reduce your tax liability.

Getting help and seeking advice can be one of the most effective investments, however, if you are looking to streamline your finances and reduce your overall tax burden.


Can You Get A Mortgage Before The House Is Built?

Tuesday, July 21st, 2015

mortgagebuildHow do you find your dream home? Well that depends on what your dream home is.

If you’re looking for a character-filled period property then obviously you will need to buy an existing home. If, however, you’d prefer a modern home built to your exact requirements, then maybe it’s time to look at building your own home.

How Do I Build My Own Home?

Building a home is obviously a major undertaking.

First of all you will need to find suitable land. This means a place where you would be happy to live and where you can get planning permission for a house. How easy this will be depends greatly on what part of the country you want to live in. It is likely to be easier to find a plot of land in rural Yorkshire than in Central London.

You will then need to decide exactly what type of home you want. Again a 1 bedroom cottage will be cheaper to build than a 4 bedroom family home. With a self build you can always start small and leave your options open to extend later, e.g. if you start a family.

Finally you have to decide how you want to go about building your new home. If you have the necessary skills you can, of course, build it yourself. Otherwise you will need to get in people to help. If you need professional help then you will need to budget for this.

Budgeting to Build Your Own Home

The budget for your future home can be divided into 4 parts: land, fees and miscellaneous costs, materials and labour.

Land, materials and labour are all essentially self-explanatory. How much you will need to budget for these depends on what you are building, where and how.

As a note of caution, be very realistic about what you can achieve yourself. Your time and health have a value and trying to spread yourself too thinly can be a recipe for struggle if not disaster.

For an accurate budget, you will also need to be prepared for various fees and miscellaneous costs you will encounter along the way. For example, like buying a house, buying a plot of land may require the help of a solicitor. You may also require 3rd-party insurance during the build process. Then there may be connection fees for utilities and other services.

Financing The Build

The good news is that building a home from scratch can work out much cheaper than buying the equivalent property ready-built. The bad news is that self build mortgages are a specialist market.

As fewer people require them, there is less incentive for lenders to offer them at all. There is even less incentive for them to offer the wide range of options and deals available for mortgages on ready-built properties.

In practical terms, most self-build mortgages work along broadly similar lines. The buyer pays the costs up-front and then recovers the money from the lender in stages. This means that people building their own home need to have sufficient funds to hand, to cover each phase of the build process until they are refunded.

It may be possible to find a self-build mortgage which pays the money for each building phase up front. Prospective builders should, however, look carefully at the cost of these mortgages. The convenience may be outweighed by extra charges.

On the subject of extra charges, self build mortgages are likely to be more expensive than traditional mortgages. This is partly because lenders see them as more risky and partly because there is less competition in the self-build market.


How Divorce Could Affect Your Retirement Income

Friday, July 17th, 2015

DivorceRetirement“Breaking up is never easy” but sometimes it’s the best you can do. The Abba hit “Knowing Me, Knowing You” was released in 1976. A lot has changed since then, but breaking up still remains a painful and potentially expensive matter.

The Basics of Divorce

There are three steps to getting a divorce.

Step one is to file a divorce petition. This currently carries a fee of £410.

If your spouse accepts the divorce petition, you can then apply for a decree nisi. This is essentially a statement which confirms that it is legally acceptable to end the marriage. If your spouse refuses to accept the petition and you wish to proceed with the divorce, you will need to attend a court hearing. You may require legal representation for this. The cost of this will vary depending on your needs.

If a decree nisi is granted, there is a 6-week cooling off period before you can apply for a decree absolute. The decree absolute formally and finally ends the marriage.

The Basics of Divorce Finance

It is perfectly possible and legal for two parties to divide their assets between themselves amicably upon divorce. Whether or not this is advisable depends on a number of factors.

Even if the divorce is amicable, it may still be worth both parties taking legal advice. Divorce can be a highly emotional situation. Having professional legal advice can help to keep both people focused on the practicalities.

There are basically four points to consider when looking at finances during a divorce.

  1. The needs of children.
  2. The immediate needs of the divorcing parties.
  3. Longer-term maintenance.
  4. The division of assets and debts

Where there are children in a marriage their needs will always be the highest priority. After this, both couples will need sufficient funds to meet their current needs. How much this will be will depend on individual circumstances.

It may also be considered appropriate for one party to pay another maintenance over a longer-term period. This is particularly likely if there are children. Even without children, however, the lower-income partner may be entitled to maintenance.

The division of assets and debts covers basically everything else – including pension savings.

How to Protect Your Finances in Divorce

Moving on financially after divorce is a bit like unscrambling eggs. Fortunately it can be done. You will need to disentangle yourself and your credit record from your spouse as quickly and effectively as possible.

One of your first priorities should therefore be to set up a current account in your own name. You should also aim to close all joint accounts as soon as you can. Separate lives mean separate bank accounts.

If you have joint debt, then this also needs to be dealt with. In an ideal world, the debt would be repaid as part of the divorce process. For example, joint assets could be sold and the proceeds used to pay the debt.

In the real world, this may not be possible. For example if children are to stay in the family home, then the mortgage payments on it will still need to be met.

Therefore the division of debts needs to be looked at just as carefully as the division of assets.

Divorce and Retirement Planning

Divorce can have a significant impact on your financial health in your later years.

First of all your existing retirement savings may well need to be split with your ex spouse.

Secondly you are each going to need to run your own home. This means that you may have the initial expenses of renting or buying a new property. It also means that bills which may have been split by two people now need to be paid individually.

Thinking Of Buying A Second Property?

Tuesday, July 14th, 2015

SecondPropertyThe dramatic increase in the cost of properties in the past decade has placed house buying out of the reach of significant sections of society.

Young adults with no capital, low wages and uncertain financial futures stand next to no chance of accessing finance from a bank, but neither do older people with a low level of savings.

Many older people who have rented all their lives or have been council house tenants, find the cost of renting in retirement too high.

The retirees who have owned properties all their lives and who have paid off their mortgages, generally get to enjoy a far better standard of living, than those who have not if they’ve not budgeted for their accommodation.

Some children of retirees who are finding their retirement a struggle have, in recent years, come up with new and innovative financial strategies to help their parents.

If your parents have existed on a low income for much of their lives and they lack the money to put down a deposit on a property (normally 25 percent of the property’s value), banks will be less than enthusiastic to lend to them.

One of the more popular strategies for getting round this is to purchase a second property for retired parents (or any dependent for that matter). Funding a second property and buying a home for a family member can be a great investment and can help to relieve financial pressure for your loved ones.

How to get a second mortgage

If you decide to go down this route, you must be at pains to point out to a potential lender that your parents are not your tenants.

You need to give the bank clear and precise information that distinguishes you from a buy-to-let property owner.

Simply keeping the bank informed about you and your parents needs will prevent you from winding up with a much more expensive mortgage product.

It is important not to be (wrongly) classed as a buy-to-let landlord and only offered specific (and expensive) buy to let mortgage packages.

The banks, in principal, are more than happy to lend you the funds to buy another person a house to live in, without you also having to live on site, as long as it is not a formal tenancy situation.

You might find that with the spiralling costs of university tuition and accommodation, that it makes sense to buy a property for your son or daughter while they are studying.

Again, you need to establish with your bank that you are buying for a relative or dependent and not establishing a formal tenancy agreement as a landlord.


You can access a standard mortgage for another person and agree to take on the responsibility for repayment of the loan, or you can access the equity in your own property.

In the first scenario, the second home is at risk, but in the second scenario, your home is, and the equity that you have built up over the years will be spent.

This means that you need to be careful with such decisions and where possible, access some expert and impartial advice.

You might find that the type of deal you need is not available through your high street lender and consulting an independent advisor could help you access different mortgage products that suit your needs.




2015 Summer Budget Review

Thursday, July 9th, 2015

EmergencyBudgetThe first only-Conservative budget since 1996 was eagerly awaited by some and dreaded by others. Freed from the restraining hands of the Lib Dems he was free to produce the budget he wanted. In his sights were benefits, tax credits and student grants, while he also indicated a slightly less draconian approach to austerity.

Good news on the economy

From the outset, he was keen to promote the government’s economic credentials. Britain was growing faster than any other major advanced economy at 2.6% in 2014. Over the next few years, GDP would be 2.5% in 2015, 2.3% in 2016 and 2.4% in 2019. Employment is on the up and 1,000 extra jobs have been created every day.

The work to cut the deficit is to continue albeit at a slightly slower rate than before. The much longed-for surplus has been postponed by a year until 2019-20. Borrowing is expected to fall from £69.5bn this year to £43.1bn, £24.3bn and £6bn over the following few years culminating in a £10bn surplus in 2019/20. Debt, as a share of GDP, is at 80.4% this year and will fall to 79.8%, 77.8%, 74.8%, before it reaches 71.6% in 2019/20.

In taking a slightly gentler approach to balancing the books, the government will be spending more than was previously planned. According to the Office of Budget Responsibility, it will be spending £83bn more than announced in the March budget. The squeeze on public sector spending will end a year earlier.


If the pace of austerity is a little slower, benefits were still firmly on the chopping block. Working age benefits have been frozen for four years including tax credits. Child tax credits will be restricted to two children after April 2017. The level of tax credit withdrawal will be reduced from £6,420 to £3,850. Young people will be forced to either earn or learn, meaning they will no longer be automatically entitled to housing benefit.

In pensions, a new green paper published by the government opens the way to a significant change in the way we save for pensions. If the changes, which will be open to a public consultation period are adopted, pensions will become more like ISAs with people able to earn a tax-free sum that is topped up by the government. Meanwhile, the triple lock on the state pension will be maintained and tax relief on pension earnings restricted to £10,000 a year for those earning in excess of £150,000 per year.

Tax and pay

As expected, the rate at which earners enter income tax has been increased again. That pops up to £11,000 as the government edges closer to its target of £12,000. The rate for the 40p rate rose from £42,385 to 43,000. As predicted, inheritance tax has received another cut. The threshold increases to £1million from 2017 with people being able to transfer an extra £175,000 “family home allowance” to their children tax-free on their death.

However, the headline grabber was the theft of an old Labour policy. The minimum wage would be replaced which something labelled as a National Living Wage. This will start at £7.20 an hour in April 2016 and will rise to £9 an hour by 2020, replacing the £6.50 per hour minimum wage. However, the levels more or less match predictions for the minimum wage over the same period. Critics were quick to argue that they had done little more than rebrand the existing system.

Osbourne spoke at length in support of non-dom tax arrangements, which he said were crucial to encouraging investment in the country, but he accepted the system needed to change and abolished permanent non-dom status. Anyone who has been living in the country for 15 of the last 20 years will be forced to pay the same amount of tax as everyone else.

Tax avoidance will also be targeted, with £750 million going to HMRC to target tax avoidance and evasion. With users of complex evasion schemes being named and shamed, he hopes to raise an estimated £7.2bn.


There were a number of measures designed to appeal to businesses. Corporation tax is to come down from 20% to 19% in 2017 and 18% in 2020. The bank levy, which has sparked wails of protest from the City, will be decreased to 0.21%, to 0.18%, reducing to 0.1% in 2021.

Small businesses had reason for cheer with an increase in the level of national insurance provisions. From 2016 this will rise by 50% to £3,000. At the same time, though, he made moves to clamp down on attempts by businesses to exploit loopholes such as setting up separate companies for each of their employees to reduce National Insurance contributions.

There are more moves to spread the wealth a little wider with attempts to spark faster growth away from the capital. Dusting down the Northern Powerhouse, he spoke of more powers being given to Greater Manchester and an Oyster card style travel system across the region. However, moves to electrify parts of the rail network in Northern England have been postponed, giving Harriet Harman a chance to lay into the plan in her response. “You can’t build a productive economy on a political slogan,” she said.

Any other business

This was a budget packed with policies. Among the other announcements was a restriction of Mortgage interest relief for buy-to-let mortgages to the rate of income tax. The rent a room relief is to be extended to £7,500 and the NHS will receive £8bn of extra funding. There was also a slight surprise in a commitment to meet NATO targets of spending 2% of GDP on defence. The UK had been widely expected to fall below this figure. Maintaining the 2% figure will require significant reinvestment into the armed forces.

Students suffered a hit with the removal of maintenance grants to be replaced by loans. However, to make up the shortfall the size of the loans is to be increased to £8,200. This will be repayable once the student’s earnings exceed £20,000.   

This was a budget the budget most people expected. For the Conservatives it has intended to place them as the party of fiscal responsibility. Osbourne said he hoped to set a standard that would require all future Chancellors to only spend as much as they brought in. Critics, meanwhile point to the cut in housing benefits to the young, the removal of maintenance grants, benefits caps, and tax credit cuts, as well as the absence of green issues.

Questions The Budget Needs To Answer

Tuesday, July 7th, 2015

questionsbudgetGeorge Osborne was last seen holding the famous red briefcase in March. On that occasion he was delivering a coalition budget.

The new “emergency budget” is a fully-fledged Conservative budget. Some people may be tempted to ask “Why do we need a new budget so quickly?”

That aside, there are actually a number of questions this budget has to answer.

What happens if spending cuts don’t work?

The Conservatives plan to combine spending cuts with a push for growth. Their ultimate aim is to move the UK out of the economic red and into the black.

Some people have, however, questioned whether the Conservatives’ plan to cut spending will actually have a beneficial impact. Some worry that they will cause suffering to the most vulnerable. Others simply believe that maintaining, if not increasing, government spending could stimulate growth.

What spending cuts will actually be made?

There are a couple of pointers about this already.

The Queen’s Speech made a reference to removing the right to housing benefit for 18-21 year olds.

David Cameron has also declared himself in favour of reducing the benefit cap from £26,000 p.a. to £23,000 p.a.

Although not technically a spending cut as such, there is likely to be a reduction in pension tax relief for the highest earners.

One cut which definitely won’t be made is a reduction to, or even freeze on, the state pension. The Conservatives have explicitly pledged to keep the “triple lock” system. This means that state pensions are guaranteed to rise in line with average earnings, inflation or 2.5%, whichever is the highest.

How do we manage our household debt?

The Conservatives are focussing on national debt. Debt can, however, affect individuals too.

The strategies for getting out of debt at a household level are, in principle, much the same as those for getting a country out of debt.

Basically you cut spending and/or boost your income (i.e. go for growth). Of course, the first point assumes that you can cut spending. In other words, that you are making non-essential purchases to begin with. The second point assumes that you have scope to increase your income. Those on benefits or pensions may be unable to do this.

How can we increase the UK’s productivity?

As previously mentioned, lowering debt of any kind means cutting spending and/or increasing income (aka growth).

For individuals increasing income may mean getting a promotion or better job. Unfortunately countries as a whole can’t do this.

Sometimes some funds can be raised by privatising national assets, e.g. national companies. Margaret Thatcher used this tactic in the 1980s.

Unfortunately an asset can only be sold once. The government has indicated that it is prepared to sell more of its stake in Royal Mail. It also plans to reduce its stake in the bailed-out banks.

Notwithstanding this, its projections for the coming years do include growth.

How can we reduce Britain’s current account deficit?

In terms of a country, the term “current account” is essentially used to mean the flow of money out of and into the UK.

At this point in time, there is more money flowing out of the UK than there is flowing in. This is known as a current account deficit.

There are various reasons why money flows out of the UK. People buy goods and services from overseas. Workers from overseas send money home to their families. Overseas investors withdraw their gains to their home country.

Of course, the same comments also apply in reverse. In other words, these are all reasons why money flows into the UK.

One of the challenges facing the Conservatives is the task of turning the current deficit into a surplus, or at least a balance.

Use Your ISA Allowance Or Lose It

Friday, June 26th, 2015

ISAAllowanceThe phrase “use it or lose it” is very relevant to ISAs.  As of April 6th 2015 you have 366 days to save up to £15,240 in your ISA.  Even though 2016 is a leap year, giving you an extra day to achieve this, it’s recommended to get off the starting blocks quickly.  Let’s cover the basics first.

What Is An ISA?

ISA stands for Individual Savings Account.  In very simple terms, you pay into an ISA out of your post-tax income.  You can either keep this money as cash or use it to buy investments.  You should know that there is a government-defined list of ISA-approved investments and you have to choose from these.  Having said that, the list is pretty extensive, so you have a good chance of finding something to suit you.  If you keep it as cash then the interest you earn is tax-free.  Generally speaking income earned from investments is also tax-free, but there are some exceptions to this.

How Does An ISA Work?

You pay into an ISA in the same way as you pay into any other bank account.  As previously mentioned the amount you can deposit in any one year is capped.  It’s important to understand that this cap relates to the amount deposited rather than the amount in the account at the end of the tax year.  In other words, if you withdraw money, you can’t just put it back later.  Otherwise ISAs work much the same way as a standard savings account or as an investment-funding account.  You can even use the same ISA for both purposes, dividing your money as you see fit.

Do I Have to Pay into An ISA in One Go?

No, you can save over the course of the year if you want to.  Alternatively you can pay in a lump sum if that suits you better.

What’s The Difference Between ISAs And NISAs?

Last year ISAs were given a revamp.  In short the limits were increased and they were made more flexible.  For a while these new-format ISAs were referred to as NISAs.  Sometimes they still are, but the term ISA is also in common use.  There’s a limit to how long something can really be considered new.

How Do I Save into A NISA/ISA?

The short answer is however it suits you best.  If you have a regular income, you can set up a standing order to ensure that your ISA is topped up when you get paid.  If your income fluctuates you can deposit money throughout the year as you have it spare.  Alternatively you could save into a regular savings account throughout the year and transfer a lump sum at the end of the tax year.  That way you can take out and replace money without any penalties.

How can I make the most of my NISA/ISA?

Quite simply the more you put in, the more you can potentially get out.  In other words, if you possibly can, use your whole ISA allowance.

If you were unable to max out your ISA last year, now may be a good time to reflect on why that was.  If you simply didn’t have the money, then that’s fair enough.  Is there anything you could do to make your income go a little further this year?  Maybe now would be a good time to review the family finances and run a keen eye over your household budget.  If you did have the money but didn’t put it into an ISA, what specifically stopped you?  Did you just forget?  If so a standing order may be the answer.  Alternatively you could set a reminder on your phone or calendar to double-check if you should be making a deposit.

Increase Your Savings Vs Paying Your Mortgage Off Early

Tuesday, June 23rd, 2015

SavingsVSMortgagesIn the past six years, the Bank of England has presented home owners who have savings with a dilemma that it is difficult to resolve.

The slashing of the base interest rate to 0.5 percent has resulted in falling rates on mortgages, making borrowing to afford properties cheaper, but it has also seen the return on savings slump.

Therefore, a property owner with spare cash might be less concerned about paying extra on his already cheap home loan, but also might feel less than incentivised to pour cash into a savings account that offers a three percent APR.

This blog doesn’t pretend to have the answers to this particular conundrum and couldn’t give advice even if it did. Instead, in the next few paragraphs we will explore the various options of home owners and savers.

Paying off the mortgage faster.

By paying £10, £20, £50 or £100 extra off your mortgage every month you are speeding up the day that you finally are able to live mortgage free.

Being able to limit the amount of time you spend in hock to the bank will have the effect of cutting down on the overall interest payments you make.

It might seem like quite a sacrifice at the time, but the quicker the debt is repaid the less it will cost you in the long run.

If this is the case, then why doesn’t everyone pay off their mortgages early? Most of us are fixated on spending in the moment and enjoying money while we have it, instead of delaying gratification for the future.

If you are planning to pay off extra on your mortgage every year then you need to ensure it is a sustainable monthly commitment.

Don’t commit to overpaying more than you can afford, it might be easier to start off with a conservative sum that you know will be easy to stick to and gradually increase it as the months go by.

For some over payers the initial excitement and enthusiasm for excess payments wains as the months go by and ambitions slip. Therefore, in order for overpaying to be a serious, realistic strategy it must be maintained over the long term.

Adding to Savings

As mentioned above, the current financial climate is not one that suits savers. There are few incentives for prudent types who have spent years building up their nest egg.

The rates of return, whilst higher than the base rate set by the Bank of England are generally far lower than they were before 2008.

So why save at all?

There are still reasons to save, it is always important to have emergency funds tucked away, irrespective of interest rates.

Also your savings, if put in an ISA will enjoy protection from taxation and will accrue some interest every month.

The rate of interest is also unlikely to remain at a historic low either, meaning that in the next few years the returns on savings will inevitably improve.

The inevitable choice

As interest rates gradually increase, there will be an incentive both to save and to overpay on a mortgage.

Savings will be better rewarded with higher interest, but mortgage debt will be more expensive making it more important to repay it as quickly as possible.

Without a thorough audit of your circumstances and your financial strengths and weaknesses, it is difficult to know precisely which option to take, overpayment or saving.

This means that before you commit to either, it might be an idea to get some independent financial advice.


What Are The Alternatives To Annuities?

Friday, June 19th, 2015

FB - AnnuitiesIt seems that wherever one looks in the media at the moment a commentator, government minister or journalist is stepping forward to tell us how awful annuities are and posing the question: why are annuities so bad?

This, therefore is an important statement that should be absorbed before we continue; not all annuities are bad, some offer good value for money and many policy holders are happy with their choice of product.

Some savers with policies have been busy asking themselves ‘how much is my annuity worth’, and at least a few will have been pleasantly surprised by the answer. Others will be demanding to know ‘how do I sell my annuity?’

Ok. That’s that out of the way and the reason in this blog that there is a brief spell of objectivity is simple. If we are discussing the alternatives to annuities we should not start from the standpoint that they are all bad.

What do I need a policy to do?

For those of you who are asking: What is an annuity? It is a policy that used to be compulsory for most pensioners, sold by insurance companies, which guaranteed a fixed, monthly income for life in return for ones entire pension pot.

The role of any policy or plan that acts as an alternative to an annuity is simple, it has to last as long as you do.

An annuity will expire on the policy holder’s death, a factor that makes it attractive as it is a guaranteed income for life and will not run out before we head off to meet the great financial advisor in the sky.

Having the option of income drawdown presents savers with new options for finding more flexible retirement finance arrangements and one of the chief concerns for many is to limit the amount of tax liabilities on their lump sum.

On retirement, it was previously compulsory to buy a policy from an insurer unless one was lucky enough to have a final salary pension.

Now, as the restrictions have been removed savers have a number of choices when it comes to accessing their lump sum, a process which is referred to as ‘pension drawdown’.

Drawdown Options

Before April this year there were two main types of drawdown, capped and flexible. Capped drawdown meant that you could withdraw up to 150 percent of the amount per annum that you would have received each year if you had decided to purchase an annuity.

A flexible draw down enabled you to withdraw per year as much as you liked. There were more risks with the latter policy, but the risk was limited as your income from other sources needed to exceed £12,000 a year in order to be eligible for it.

Now the drawdown schemes have been simplified and replaced with flexi-access drawdown, which allows pensioners to take a quarter of their pot tax free in a lump sum withdrawal.

Subsequent withdrawals after the 25 percent tax free chunk are taxed at the standard income tax rates. If in a tax year you withdraw just £10,600 it will be tax free and the next £31,785 will be taxed at twenty percent.

If you’ve already been part of a capped or flexible drawdown plan, as of April 2016 these plans will convert to the new flexi-access scheme.

Getting advice

If, before now you’ve been wondering ‘what is an annuity’ or ‘how do I sell my annuity?’ it might be worth getting some professional advice on annuity policies, drawdown schemes or other alternatives.

Should I Fix My Mortgage Now?

Tuesday, June 16th, 2015

FB - FixMortgageDeflation is not all it is cracked up to be. Recently, as we cheered at the fall in fuel prices to historic lows, the fact that several industries were dependent on buoyant oil prices barely occurred to many of us.

However, the current plight of the oil city Aberdeen shows that there are significant problems attached to our current glut of cheap fuel.

Currently we have a glut of cheap borrowing too. Interest rates are at historic low, giving many of us low cost mortgages.

However, the actual amount of credit on offer is tightly regulated, following the housing boom and housing crash.

At the moment, there seems little evidence that an interest rate is in the offing in the short term and home owners are benefiting from the lowest mortgage rates, but even if this lasts, it might not be great for the economy in the long run.

How do I reduce my mortgage payments?

Classical economics suggests that supply and demand reach an equilibrium eventually and that equilibrium is always expressed through the medium of the price mechanism.

We have lived through a half decade of repressed demand in the economy for goods and services (in this case property) due to the long period of belt tightening that we have endured. Supply has remained relatively static, meaning that overall prices have declined or at least stagnated.

There are exceptions to this rule, London and the South East for example, where demand has outstripped supply.

In some sectors of the housing market (luxury six figure properties), spending power has remained largely consistent, meaning that there has been little overall decline.

Lowest interest rates

This decline of spending with the market place has led to a degree of deflation and for property owners this has brought about considerable advantages.

Those home owners on fixed rate mortgage products have been able to switch to variable rates, knowing that in all likelihood the rate won’t really vary all that much and if it does, the base rate set by the Bank of England is still 0.5 of a percent.

In the long term, this, of course, cannot last. The slashing of the cost of borrowing to almost non existent levels has brought about cheap mortgages for many of us, but for savers, it has been little short of disastrous.

Families used to accruing valuable interest off their savings have seen an important source of income and investment lost because of the decision to bring the base rate so low.

Savers will eventually demand to have their fortunes restored and when the Bank of England and the government comply, mortgages will become more expensive once again.

Mortgage Deals

Judging whether or not to take out a fixed rate mortgage now is beyond the scope (and the legal remit) of this blog, and ultimately it is a question that can only be answered by the borrower.

If you are risk averse and value security enough that you are willing to pay slightly more for a feeling that your financial future is more secure, then buying a fixed rate is eminently sensible.

However, if you have speculated that rates will stay low and there is no need to switch to a more expensive fixed rate, then you can stay on a variable deal. This might result in a scramble for a fixed rate policy when rate changes are announced, and at that time the cost of a fixed rate deal will inevitably be higher.


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