Who is a better bet?

    mr money bags business cartoon (2)Our columnist Mr Money Bags, who has decades of experience in Finance, an MBA, an advanced diploma in Financial Planning and not to mention his super business skills, is here to give you, our lovely readers some valuable tips and advice on money business matters. He is forthright and can sometimes be stern when it comes to your cash, but when it comes to finance he really is the expert. Read on for your business and finance advice…

    I get many free magazines from finance providers which end up sitting in a pile with the best of intentions to be read – usually though if I’m honest this does not happen. This week however, I was looking at the front page of a magazine which detailed how buy to let investors are going to be hit hard with fee hikes; whereas Barclays have recently decided to bring back 100% mortgages.

    It just got me thinking, who is the safer bet: someone who saves 25 or more percent deposit to buy a property or the person earning £50,000 who has no deposit?

    Back in 2008-09 when the big lenders offered such mortgages, I always used to pose the same question to my customers: if you cannot afford to put down any money, then should you really be buying a house? This was my acid test to ask my customers if they have really thought about the purchase. Looking back I guess I asked the question because I wanted to be sure that the person sat in my office can afford the mortgage for the duration.

    So let's fast forward eight years. This particular mortgage deal is reliant on the parents or other family members stumping up 10% of the funds upfront. Personally, I think many family members might end up losing their money as if rates increase in the next few years, and the person has not adequately budgeted, then they are likely to fall behind.

    A mortgage should never be taken lightly, and this mortgage allows someone to go up to 5.5 times annual income. This might be ok now, but what if income falls, or the persons affordability is stretched in the future i.e. Raising a family. These are all important questions to ask yourself before taking out a mortgage.

    Now let's look at the buy to let investor. My view is someone who can afford to put down 25% as a minimum should not be hammered with higher fees to pay for lenders undertaking stricter tests. Lenders should already be undertaking strict checks to make sure property yields are adequately covered just in case rates go up.

    The Prudential Regulation Authority is rightfully worried that if rates go up, property investors might be unable to keep up payments; therefore increasing the amount of deposit to get a greater yield, as well as being able to remortgage in the future, makes sound sense. The issue though is those individuals who took on a mortgage when the margins were tight, and now due to newer more stringent tests, might have to find more funds from somewhere to get another rate after their initial deal ends. The individuals might end up locked into a deal paying far higher interest, and having to push up rent to pay for being in a bad mortgage situation.

    Overall my view is that someone is buying their first home and they have no deposit saved up to pay upfront, then they should not be buying a house. This is because they might not fully realise and appreciate the commitment they are getting themselves into. A buy to let investor who takes out a new mortgage with a large deposit in my view is possibly going to be in a much more secure position for a lender.

    The next few years are looking interesting for the property market, and I think more changes are to come. My view is that the changes will be to tighten the criteria further for both investors and those looking to buy or remortgage a property.

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    18 year olds are not considered financially responsible, according to new research

    Would you trust your teenager with a large sum of money? New research by YouGov, commissioned by wealth management company Brewin Dolphin indicates that most adults in the South East do not trust 18-year-olds to inherit or handle significant sums of money and feel the early and mid-twenties is a more financially responsible age group.

    Legally, once a child turns 18 he or she can access the money in a junior ISA (JISA) – as set up on their behalf by parents and grandparents - and spend it how they please. However, over two out of five adults (42%) in London and the South East believe 18 is too young for children to be given control of such savings plans, according to the survey, in line with the national average of 43%.

    When asked about what age a child is responsible enough to inherit £100,000 or more, only 7% of adults in the SE and London felt that those aged 18-21 are old enough, with under a quarter (23%) thinking 22-25 year olds are mature enough to take on the responsibility. 28% felt 26-30 year olds were responsible enough, while a further 29% felt that people need to be older than 30.

    Financial responsibility_South East and London

    The majority of respondents in this region also felt that restrictions should be placed on children inheriting wealth – only one in 10 (9%) people felt that no restrictions are needed – with just over a quarter (26%) of people saying that children should be at least 25 to inherit without restriction.

    Commenting on the findings, Rob Burgeman, Divisional Director of Investment Management at Brewin Dolphin, said: “While there is a commitment by parents and grandparents to ensure that their children and grandchildren have the best financial start to adult life, they do not want to see their money wasted or become the cause for financial recklessness and frivolity. Some would rather wait until the recipients of their wealth have reached an age of financial maturity, so that the money is spent in a way that reflects the spirit in which it was given.”

    Despite this, 41% of Britons in the SE and London say parents should help with paying their children’s university costs. Surprisingly, there is a huge divide in this area across the regions - almost half of Londoners (46%) agree that parents should help pay for university, compared with just 16% and 17% in the North East and East Midlands respectively. Help towards a deposit for a new home also tops the list of ways in which Britons in the SE and London think parents should financially support their children, with 39% of adults citing this. In addition, 29% said that parents should pay their children’s wedding costs.

    When it comes to financial education, the overwhelming majority (91%) of adults in this region agree that it is the job of parents to teach their children about responsible money management. 85% of adults also agree that pocket money is a good way to start teaching children to appreciate money and instil a sense of financial independence.

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    Does your property breach the inheritance tax threshold?

    mr money bags business cartoon (2)Our columnist Mr Money Bags, who has decades of experience in Finance, an MBA, an advanced diploma in Financial Planning and not to mention his super business skills, is here to give you, our lovely readers some valuable tips and advice on money business matters. He is forthright and can sometimes be stern when it comes to your cash, but when it comes to finance he really is the expert. Read on for your business and finance advice…

    Property price rises over the last decade or so have led to 25% of all properties selling for more than £325,000 in 2015. This is the threshold where after this figure all your assets are taxed at 40% after death. Inheritance tax has stayed the same over the last 7 years, whilst prices due to various factors including inflation have increased.

    The treasury collected £2.69 billion in inheritance tax in 2010, and most recent statistics show this figure as £4.56 billion in the 2015 tax year. Insurance company Saga recently discovered that just one in ten people over the age of 50 know that the inheritance tax threshold is £325,000 for a single person. This is worrying as it clearly shows many people are not planning to save tax for their families, and are unaware of the implications of what happens when someone passes away to their estate.

    If a person passes away the government want any tax calculated circa 6 months after the date of death. Some of the tax may need to be paid before grand of probate is granted. This means your family might have to find funds to pay tax before the property can be sold.

    Is there any good news coming, or is it all doom and gloom for many more families in the future? The government has made some changes to try and reduce the tax burden on hard working individuals who are passing on their wealth; however please be aware the changes may not apply to all individuals.

    At present, if someone is married or in a civil partnership, all assets passed to the surviving person on death will fall under an inheritance tax band of £650,000 for the surviving spouse. In the last budget the government announced upcoming changes to lift family homes worth up-to a million out of tax.

    This will not be immediate, as a new tax allowance will start in 2017, which will rise as follows: £100,000 in 2017 and slowly increasing to £175,000 by 2021. It will then rise with inflation. However those with estate worth £2 million plus will have the additional allowances reduced for £1 for every £2 of their estate over £2 million.

    The tax allowance above will only apply to one residence property; therefore if you have a few properties they will not benefit from the allowance. The property also needs to be passed to your direct descendants to qualify for the tax allowance.

    This leaves a slightly bad taste in my mouth, as what about those people who choose not to have children, or unfortunately cannot have kids? In my view these people are put at a disadvantage, as they will not benefit from the new tax allowance if they want to leave funds or property to other people.

    There is something I wanted to say at this stage, which is that if you are worried about your own tax circumstances then please get some help. There are plenty of websites that will give you more information, but in the likelihood you feel you might have a tax liability, there are many professionals out there who can help you understand and tackle it head on.

    I find that there are two distinct types of clients I meet: those that do not care about tax, and those that are genuinely worried about it. If it worries you, don’t be afraid to get some advice.

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    Bank of England unveils new £20 note design and personality

    Today, Bank of England Governor, Mark Carney, announced that J.M.W. Turner will appear on the next £20 banknote due to be issued by 2020.  At the announcement at Turner Contemporary in Margate, the Governor revealed the image of Turner that will be used on the note.

    bank of england £20It was the first time the Bank has asked the public as to who should appear on a specific banknote. An overwhelming 29,701 nominations were received from the public, after the bank announced it wanted to celebrate an artist on the note.

    Approximately 600 eligible visual artists were considered for the honour - about a fifth of whom are women, before the English Romantic artist was chosen.
    The note, is to be made of polymer and will eventually replace the current £20 note featuring the economist Adam Smith.
    The choice means all but one Bank of England banknote character will be men.

    Of the five characters on banknotes by 2020, other than the Queen only Jane Austen - appearing on the £10 note from 2017 - is a woman.

    The men who will feature by 2020 are Sir Winston Churchill on the £5 note who will replace campaigner Elizabeth Fry from September, Turner on the £20 note, and Matthew Boulton and James Watt remain on the £50 note.
    Joseph Mallord William Turner, or JMW Turner (1775 - 1851), is known as "the painter of light" and described by artist Tracey Emin as a "wild maverick".

    The banknote features Turner's self-portrait, from 1799, currently on display in the Tate Britain, and one of his most eminent paintings - The Fighting Temeraire - which can be seen in the National Gallery. In 2005, the painting - a tribute to the ship HMS Temeraire in Nelson's victory at the Battle of Trafalgar in 1805 - was voted Britain's greatest painting in a poll organised by the BBC.

    The quote on the banknote - "Light is therefore colour" - comes from an 1818 lecture by Turner at the Royal Academy, where he first exhibited at the age of 15. His signature is from his will in which he bequeathed his work to the nation.
    The unveiling was held at the Turner Contemporary in Margate, Kent. It was in the town that the London-born Turner, the son of a barber and wig maker, loved and more than 100 of his works were inspired by the East Kent coast.
    The new £20 note will be the third Bank of England banknote to be made from polymer, following the new £5 note and new £10 note.

    The theory is that the plastic notes will be more sturdy, such as surviving a spin in the washing machine, and be more resistant to counterfeiting.

    Only the £50 note will remain a paper Bank of England banknote.

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    The Budget: Winners and Losers

    mr money bags business cartoon (2)Our columnist Mr Money Bags, who has decades of experience in Finance, an MBA, an advanced diploma in Financial Planning and not to mention his super business skills, is here to give you, our loves readers some valuable tips and advice on money business matters. He is forthright and can sometimes be stern when it comes to your cash, but when it comes to finance he really is the expert. Read on for your business and finance advice…

    Let’s start with the key positive points of this year’s budget:

    • Tax allowance will be increased to £11,500, with the higher rate band rising to £45,000 by April 2017
    • Lifetime ISA – to use to buy your first house or save towards retirement. The maximum you can save is £4,000 of your own funds per annum
    • Business rates relief threshold increasing from £6,000 to £15,000
    • A sugar tax, the funds from which will be used to fund sports in primary schools
    • HS3 between Leeds and Manchester
    • Incentive for lower income savers to save, which will be worth up to £1,200 per person
    • Freeze on fuel and alcohol duties, whilst increasing duty on cigarettes
    • School children will experience a longer school day

    Now the key negatives are:

    • Disabled individuals will be heavily hit, with circa 300,000 people set to be hit by between £3,000 -£3,600 per annum
    • More cuts across the board as the government needs to save more funds
    • A tax rise for insurance premiums

    There are certain bits of the budget that I really like. As I work in finance I always am keen to see if the government is helping individuals by raising the threshold within which people pay tax. This is yet the case again, and I guess we need to thank the Liberal Democrats as well as the Conservatives for helping most of us, and taking millions of people out of paying tax.

    I know some people would say it is not fair as higher rate tax threshold is increased, therefore the highest paid are benefiting, however the higher rate band has been squeezed since 2009 and it is about time people that the higher rate band is moved upwards. I say this because those on middle incomes have seen their net pay squeezed since 2009, and it is refreshing to see that the government recognise that many people earning circa £43,000 are not relatively well off.

    The other big news is those of us that want to take a dabble online and make some cash. The government have given individuals a further £1,000 tax free for this purpose. I really like this idea as it might get people to think about new digital business ideas. This is especially the case since the first £1,000 is tax free.

    In terms of the sugar tax, I like the fact that the government will plough the funds to aid sports for primary school children. I guess the tax will make most of us more health conscious. The tax is based on drinks, however surely it needs to extend to cakes, as well as chocolates. In my view any item with 20% plus sugar content should be taxed, and healthy foods and snacks should be reduced in prices.

    The government however have left a sour taste in the mouth of many of us due to the cuts specifically aimed at those that get disabled benefits. I really feel for someone who is getting benefits due to a disability because for those genuine cases, the person is not able to work through no fault of their own. I must say Ian Duncan Smith resigning has heightened the debate, and for the right reasons. Perhaps the government should look at benefit fraud, and target fraud as a means of making cost savings, rather than hitting the most vulnerable in society.

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