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- Mortgage and Pension Questions Answered

March - May 2017

A number of questions have been asked following on from the last couple of editions of B Inspired.
These questions have been individually answered but there have been a few more in-depth questions regarding home loans and pensions.


In an attempt to provide some clarity I have provided the following snippets of information.

 

MORTGAGES

 

Property Clubs
These work in many ways, but are designed to bring together individuals or companies so that collectively they can buy property. Some have poor practices and should be avoided. 

 

Interest of further advances
Raised on your own property or buy to let properties, cannot normally be used to offset against rental income for tax purposes. There is a way, but normally only the original loan interest counts.

 

Second Properties
These can incur a capital gains tax charge on the increase in value when sold.

 

Renting out a furnished room
Within your main home is a tax free method of receiving income up to £7,500pa.

 

Additional properties
Second, third, fourth etc properties add to the value of your estate when it comes to inheritance tax. Mortgages on these properties reduce their value - so long as the mortgage proceeds are held in an investment or  trust that qualifies exemption.

 

Equity Release
This can sometimes be the answer to raising needed funds and whilst they have their place, the huge downside should not be ignored, so be wary. 

 

Mortgages with Life Cover
Less than 50% of mortgages are covered by the appropriate life cover; and many of those that do have not set it up correctly.

 

How qualified is your mortgage adviser?
The Chartered Insurance Institute grade financial advisers on a points basis. A basic adviser needs 140 points, a Chartered adviser needs 290 points, and a mortgage adviser needs 30 points.
A house will be a major asset for most people, so I urge you to take proper advice.

 

PENSIONS

Contribution Limits
There is no limit on the amount you can pay into a pension annually, or in total, but there are limits set at which additional tax becomes payable.

 

Taking benefits
These can lead to both large tax demands and reduced limits if not arranged properly.

 

Pensions Tax Free
They do not form part of your estate when looking at inheritance tax.

 

Pensions Do Not Die
Provided they have been set-up/amended correctly, they do not die with you, as they can be passed on from generation to generation and often tax free.

 

Old Pensions
Not all pensions are the same and whilst some old ones may be good, many are not.

 

Funds Affect Value
Long term it is usually the funds chosen rather than the contribution level that affects the value.

 

Flexible Pensions
Many pensions do not allow the flexibility required by most people, however there are usually better alternatives, with better chances  of return.

 

Annuities
Without research these are still normally bought from the pension provider despite most not only representing poor value, but often being inappropriate.

 

Final Salary Schemes
Known as the Gold Standard, there are however, many reasons why you should review them, including:
- Death benefits are often lost on death
- Potential beneficiaries are very limited
- Little or no flexibility exists on drawing benefits
- Benefits are often available later than when required
- Under funded schemes could result in lower benefits.

 

Cost
Cheap does not mean good. We have seen this with both stakeholder pensions and the new Auto-enrolment Scheme. 
Likewise, expensive does not mean good. You need to know the true benefits.

 

Pensions can hold Assets
For example, land and property, but be very very wary of scams. If it looks too good or unusual seek alternative advice. Pension funds hold a lot of money; fraudsters can therefore obtain huge amounts of other peoples funds quickly and easily.

 

£110k p.a Pension Benefits
You can obtain a 60% tax relief 
on a £10k pension contribution, and 25% back tax free. Thus a fund of £7,500 can cost as little as £1,500.
 

£50k+ p.a Pension Contribution Benefits
A pension contribution could bring earnings below £50k and this qualifies you for 40% tax relief and secures future child benefit payments.

 

I have listed only a few ‘snippets’ of the many that exist. If you have questions on either of these areas, or anything of a financial nature feel free to contact us.

Tony Larkins

Further Details:
Should you require financial assistance for pensions, savings, investments, mortgages, protection, long term care, employee benefits... contact the team at Beacon Wealth Management Ltd. 


Website: www.beconwealth.co.uk
 

Email: info@beaconwealth.co.uk
 

Tel: 01480 869466
 

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Address:

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Kimbolton, Cambridgeshire, PE28 0HW