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Your Questions Answered

Each week in my Sunday Mirror spread I feature a number of questions that readers have sent in along with their answers. This page is a repository for all of them I have answered so far, updated weekly with newest ones at the bottom of each list.

Financial Planning

Do I pay tax on the sale of my rental property?

When you make a capital gain, you pay tax on any amount gained that’s in excess of your annual tax-free capital gains allowance, which is currently £12,300. The tax rate will depend on your income and there are costs you can offset to reduce your gain. I recommend you seek advice from a tax adviser with this, you may save their fee and more.

Is it worth me leaving money to a charity in my will?

Charities have been particularly hard-hit by the pandemic and any financial support you can give will be welcomed. It’s also tax efficient: you won’t pay inheritance tax on the amount you gift in your will, known as a ‘charitable legacy’, and if you leave at least 10% of your net estate to a charity, your inheritance tax rate on the rest of your estate reduces from 40% to 36%.

My mother kindly left me the family home in her will, for the past couple of months I've had the property on the market to sell. I'm one to look well ahead and potentially things could take a very negative turn, so if I am unable to sell, should I release some equity and let the property out? and when I do sell, will I be liable for Capital Gains Tax?

If it’s not selling a rental makes sense, but don’t borrow against it. Don’t worry about CGT in the short term, your ‘purchase’ price will the probate value and I can’t see house prices increasing much in the short term.

Do I need a will?

The short answer is yes. Far too many of us don’t have one, and if nothing else it makes the administration of your estate easier for the people you leave behind. If you have minor children it’s absolutely essential to have one, so you can name your preferred guardians rather than have someone else determine them for you.

I need to wind up my small limited company because I have been severely affected by the coronavirus. Can I make myself redundant?

You can, if you meet the rules surrounding doing so – you should seek advice from your accountant. As long as you are eligible you have the same rights as an employee has, meaning you’re entitled to up to £30,000 in tax-free redundancy pay and benefits.

I am worried I may be made redundant, what should I do?

Try not to worry but take action. Get your financial house in order, cut any excess spending, put your debts on low-interest rates and build up cash savings. Now get looking for work, update your CV, LinkedIn profile and look.

What is equity release?

It’s a mortgage secured against a property, generally for those 55 or older, and rather than pay a monthly mortgage payment, the interest is added to the mortgage. The only time I suggest you consider these are if you really will not downsize, and you need access to the capital value of the house.

I claimed my self-employment grant with £34,116 net profits. HMRC calculated my 80% payment of this at £2,275 (calculations included), which is my total grant for three months. I believe this is wrong and have asked for a review.

HMRC works out your average net profits by adding up your total trading profits for the last three tax years, then dividing by three. If your profits over all three years were £34,116 in total, their calculations look correct to me. However, if that was only your profit from last year, you should contact them with the previous two year’s figures too.

What is Marriage Allowance?

A non-taxpayer in a marriage/civil partnership can transfer 10% of their personal allowance or £1250 to a basic rate tax paying partner saving up to £250 income tax. You can also claim for the previous 4 qualifying years.

What is a recession, and should I be worried?

A recession is when an economy contracts over a period of six months or more.  It’s usually measured by a fall in Gross Domestic Product (GDP), the sum of the value of goods and services produced in the economy.

Often unemployment rises so job losses make life difficult for individuals and the country.

Are taxes going to increase because of the public borrowing?

That’s down to Rishi Sunak. He has stated that it’s not being ruled out. My view is that if he does increase taxes, it will be gradual and targeted to those who can most afford to pay. The economy is recovering – not recovered – and he would not want to jeopardise all the hard work and investment that’s been made.

I have no earned income, only rental income and I am a higher rate tax payer. Can I claim the higher rate tax relief on my £3,600 pension payments, or will I only get basic tax relief?

Good question. While I don’t have personal experience with this, I cannot see why you could not claim higher rate tax relief on your contributions. You would do this via your self-assessment or by writing a letter to HMRC – you can find a template in the resources section of my website for this.

I am married with a mortgage and children, how much life assurance should I have?

Without knowing your assets it’s hard to be definitive, but as a rule, you should buy some mortgage protection term assurance to repay your mortgage and other debts, and a Family Income Benefit term to provide for any lost income as a result of premature death. Ensure you arrange single life polices and write the benefits into trust.

Debt Management

We have a 27-year interest-only mortgage and over £30,000 debts. We’re on a payment plan but can only pay the minimums. I’m due to retire in eight years, my husband is facing redundancy. We’re likely to inherit money which could clear our debts in the future, but I’d like us to be in a better position now, as I feel we are just drifting. What should we do?

You’re right to want to act now. We’re living longer and require more care, which could be a significant expense on your potential inheritance. So don’t bank on it. I appreciate you may be in survival mode, but you need to get organised and you must cut your expenses to free up some income. Check out entitledto.co.uk to see if you can claim any additional benefits, and see if you can make a little more money by selling items online, or working additional hours. It won’t be easy, but it will be worth it. You have about 96 months to get straight: you can do it, if you get a plan.

Retirement & Pensions

I’m 35 and have worked in the NHS for over five years. I immediately joined the pension scheme and I’m still in it. Should I also look to start a private pension plan?

Have you repaid any unsecured debt and built an emergency fund (3-6 months of expenditure)? If yes, then split additional savings you have between mortgage overpayment and pension investment. You need to ensure you don’t exceed the maximum funding amounts – the annual allowance to put into a pension and still receive tax relief is capped at £40,000 annually.

I have a defined benefit pension which I can claim, but I am still working, should I take it or defer it?

This can be complex, so seek advice, but an important thing to remember is that you will never be paid the pension income that you defer, you’ll only receive an increased pension from when you retire. This can mean taking the pension is sometimes a good option, but seek advice.

I am considering becoming a Spanish resident before the end of the year, can I continue to fund my personal pension?

Yes you can, but you will be limited to £3,600 each year. Your contributions can continue for up to five years after the end of the tax year in which you leave.

When can I access my pension fund?

There are many different types of pensions, you can access your personal pension fund, known as a defined contribution pension from age 55. If you are a member of a final salary pension, known as a defined benefit pension the scheme will have a ‘normal retirement age’ accessing the scheme before this age often incurs a penalty. Finally, you can access your state pension from your state retirement age – all three could be different.

I have pensions from many years ago, how do I track them down?

If you have any pensions from previous employment or that you can’t find, use the pension tracing service www.gov.uk/find-pension-contact-details. It won’t give you the value or location of your pensions, but it will give you contact details for providers across the UK. You can also visit my website for tips.

How much I can safely draw down each year from my pension?

It’s often said that withdrawing 4% of your pension pot annually as an income will see you through over 30 years of retirement without running out of cash. But a set rule like this doesn’t take into account your changing needs throughout retirement, and if you break the rule one year, it can have big consequences. So tread carefully and plan ahead.

If I am a victim of pension fraud, am I protected?

This is a very complex area, but is a nutshell if you are working with a company who is regulated by the FCA you should have some protection under the FSCS; however most fraudsters are not regulated, and therefore you are not protected.

I want to retire aged 60. How do I know how much my pensions will provide me?

Your pension provider will provide you with an illustration of benefits for your chosen retirement age. You can also check the Money Advice Service annuity comparator to see what type of annuity you could buy, or alternatively if you want to use drawdown, an income of £3,500pa per £100,000 in your pension pot is reasonable.

I’m 60 years old and a smoker, and thinking about buying an annuity. Is it a good idea?

I would recommend first that you have a full medical. An annuity income is based on your health and if you have any underlying medical conditions, not only is it good for you to know about them but they may also enhance your income rate. Prevention is always better than cure and it’s wise to carry out a medical annually.

My son is in and out of work and I want to help him with his pension. Can I pay £3,000 into it?

Anyone can pay up to £2,880 into a pension annually if they have no income, or up to 100% of their income, capped at their annual allowance. So yes, you can pay this directly into his pension and tax relief will be added to the payment. However, if he has no pensionable income I recommend you only pay in £2,880 as the maximum.

Savings & Investing

How can I protect the house deposit my parents gave me, if my partner and I split up?

The easiest way to protect the deposit is by way of a deed of trust also known as a declaration of trust. It’s a legal document recording the financial arrangements between joint property owners and anyone else with a financial interest in the property.

I have about £8k which I was planning to invest prior to the lockdown and have been waiting to see what happens, what should I do?

When you invest you always need to ensure you know why you’re investing? How long you will invest for (allowing at least a rolling 5 years) and how much the investment can fall, because it will, before you feel uncomfortable. Then, look for low cost global index funds which match your risk profile.

With interest rates on savings accounts being so low, I have been considering investing in stocks and shares. How would I get started and what advice would you give

You should only invest in the stock market if you are keeping your money there for at least 5-7 years, allowing time to ride out the inevitable ups and downs. I’d suggest you investigate using what’s called a global index fund, which has low fees and splits your money between many different companies, reducing your risk. Consider sites like Lexo.co.uk or Vanguard.co.uk to get started.

I heard we may have negative interest rates, what does that mean?

The governor of the Bank of England, Andrew Bailey, has said officials are actively considering all options to prop up the economy. Negative interest rates would mean savers could be charged to keep their money in an account. Borrowers with a variable rate mortgage would see their payments reduce – but most have a minimum you can be charged. In Denmark last year, negative interest rate mortgages were available which means the amount owed falls over time.

I'm 30, live with my parents, and I’m desperate to move out. I've saved a 5% deposit with no other savings or emergency fund. Should I stay with my parents another year to save for emergencies and a bigger deposit, or buy now?

I really urge you to have some savings behind you first, because if something unexpected happens you could get into trouble quickly. Regarding the deposit, while mortgage rates can become more favourable if you have a bigger one, I wouldn’t worry – it’s far more important that you’ll be happy in the property even if its value fell. You could use a LISA to save for 12 months and earn bonus money towards your home.

My teenage son wants to invest in the stock market, what do you recommend?

Investing in the stock market comes with risks, but arguably it’s a good time to start looking when you’re young. An investment fund that follows a world index is a good place to start and don’t try to outsmart the stock market by timing your investments. You can protect the investment from paying any tax by using a Junior Individual Savings Account or JISA which has a £9,000 annual limit.

Are Premium Bonds a safe place for my money?

National Savings and Investments Premium Bonds are backed by HM Treasury, so they are as safe as you can get in the UK however, whilst inflation and interest rates are low, they offer a good home for your emergency savings, but you won’t see any real long term growth on your money so they are less ideal for long term money.

I am 18 and have managed to save £25,000. I’m considering buying my first house. Should I?

Firstly, congratulations: anyone able to save this level of money has done a great job. The two most important things you should invest in is your education and a home. I don’t think you should be in any rush though. Work hard, continue to save and if a good opportunity arises you will be ready. If you wait, consider investing more into an ISA for long-term growth.

I have inherited £250,000 and I want to invest it, what do I do?

Firstly, for a sum of this size I think you should seek help from a financial planner, even if only for planning advice and you end up investing it yourself. In general, you should look to maximise your pension, then your ISA, and keep the balance in a general investment account (GIA). You will pay capital gains tax in the GIA of up to 20% on gains over £12,300, but good advice will help you with this.

I was given some money by my parents for my GCSE results, I am studying A-Level Business and I want to invest this money for my future. What should I do?

I’m so excited when younger people want to learn about investing. Because you’re under 18, you cannot own equities directly yourself. The best option for you would be for your parents to open a Junior ISA, which will automatically convert to a Stocks & Shares ISA in your name on your 18th birthday. And try to learn more about investing and focus on global equity index funds.

Tech is doing so well, should I buy tech shares with my spare money?

Technology shares in the main have performed well during this pandemic as people have relied on tech for work, socialising and shopping. However, buying one specific share is very risky, especially if you are not very well informed. I would prefer you invested in a global index fund, which has also done well during this period, and you won’t then carry any specific company risk. When tech goes off the boil, you’ll own the next hot thing.

My son is looking to buy a house, is there anything I should do with the money I have invested for him?

You told me you have 80% in equities and 20% in bonds and he’s wanting to buy in December 2021 onwards, after he completes his training. I would suggest you reduce the investment risk in anticipation of this and also ensure he utilises his LISA allowance for a free £1,000 bonus – and remember to encourage his partner to do this too.

Where and how much should I save for my children?

The amount comes down to your own budget: secure your own financial future first. Children’s pensions are great vehicles for this, particularly for grandparents to fund, although they won’t be accessible until the child reaches age 67 under current legislation. If you’re looking for something sooner, setting up a general investment account in your name should work well for university fees.

I’m 66 and I want to buy my neighbour’s house to rent it out. Is that a good plan?

Don’t do it! Simplify your life, don’t take on tenant problems at your age and definitely don’t take out a mortgage. Instead top up your pension, the income you’ll receive is likely to be higher than the rental income, and you’ll have no hassles to worry about.

My daughter recently made me a grandfather for the first time. I would like to save some money for my grandson, where is the best place to invest this?

Congratulations! Saving into a pension for your grandson will be a gift that he will remember you for long after you have died – he could easily retire as a millionaire with just a low level of monthly contributions from you until his 18th birthday. You can invest up to £2,880 annually and for every £1 you invest 25p tax relief will be added for him. But do bear in mind, he will only access the money at his retirement age. If you want him to enjoy it earlier, you could use an ISA or set up a Junior ISA for him (it will revert to him on his 18th birthday).

Should I buy Bitcoin or some other form of cryptocurrency?

It depends on why you want to buy it. If you want to gamble, do it just for the experience or do it to have something to talk about then it’s a consideration; but don’t buy it if you intend to invest into cryptocurrency to build wealth for your future. Cryptocurrency is not an investment, it’s a commodity, and its extreme volatility means you are likely to have a better experience with a global index fund.