Abbey

Chartered Tax Advisers
Old Bishops' College
Churchgate
Cheshunt
Hertfordshire
EN8 9XP

T: 01992 642024

E: abbey@abbeyaccountants.com

Smiling businessmen and women

  TAX E-NEWS - Monthly Updates May 2015


Welcome to our monthly tax newsletter designed to keep you informed of the latest tax issues.

We hope you enjoy reading the newsletter; remember, we are here to help you so please contact us if you need further information on any of the topics covered.


Peter McDaid CTA ATT TEP
Tax Partner



BUY-TO-LET:
A TAX EFFICIENT USE OF YOUR PENSION?


In recent survey it has been found that 11% of people approaching retirement plan to buy a second property to let, to supplement their retirement income.

Apparently some 32% of people aged between 45 and 65 would consider using some or their entire pension fund towards a buy to let property as an alternative to retaining it or investing it in a traditional pension fund.

Under the new pension rules, people over 55 can now withdraw all of the funds from their pension schemes (defined contribution only). This action could however have serious tax costs. A person can take 25% tax free but the remaining 75% would be subject to income tax at the various rates applicable depending on a person’s personal circumstances.

So withdrawing all of the funds from a pension plan and investing in a property may well not be that tax efficient. A better option would appear to be to take the tax free 25% proportion of the fund and use that as a deposit for the property.

There are some mortgage providers willing to lend to over 55s. For example the Nationwide Building Society has a 35 year loan for anyone up to the age of 70.

The general consensus is that with the property market growing, investing in a buy to let property is a good long term investment and an excellent way of boosting an individual’s retirement income. The rush of pensioner buyers may well contribute to pushing up house prices in this sector.

There are a number of issues that need to be considered. Finding the right property, the right location and the right tenant is all important. There are a lot of administrative hassles of being a landlord. It is vital to understand the returns that the property can generate, the tax implications arising on the rental income and the capital gains tax that may arise on the eventual disposal of the property. If the property is then to be left as an
inheritance there are further inheritance tax implications.

Unscrupulous tenants may try and take advantage of landlords who are of pensionable age. Additional unbudgeted expenses can be incurred in repossessing the property or carrying out repairs to damaged property. In saying that, taking the necessary precautions for example carrying out full reference checks on prospective tenants, inspecting the property on a regular basis and taking out full Landlord insurance can help to minimise the risks.

To conclude this is a viable option but will require a lot of leg work, good judgement and careful planning. A buy to let property is a flexible investment providing an immediate source of income and the expectation of considerable long term capital growth in value.









THE FOUR KEY RETIREMENT RISKS

If you are planning for retirement there are four key risks you need to consider:

Longevity - People are now living much longer so you need to plan for the investments and savings to last longer than planned.

Inflation - Even mild inflation over a 10-20 year period has a significant impact on the value of your savings and pensions. It is vital to protect your standard of living.

Volatility – The value of your investments can rise and fall and any poor performance could be significantly detrimental to your pension.

Lack of Flexibility – When you first retire your spending is still reasonable high as you pay off debts, go on holiday and enjoy your free time. As time goes on you become less active and spending falls. This tends to rise again as health worsens and care costs become more of an issue.

You should give careful consideration to your retirement plans and take these key factors into account. Planning well in advance helps considerably in dealing with the situation. Ascertaining your net worth, checking on your pensions and obtaining forecasts are all necessary first steps.

If you are in business how do you plan to extract yourself from your business?

Thinking about how you want to spend your retirement, where you want to live, and how much this will cost will provide the questions and possibly the answers to your retirement.

Moving on, planning on what happens when you pass away is what most people put off as they don’t like to think about it. But again it is important to plan ahead and make decisions to ensure that people that you care about are looked after and that Inheritance tax on your estate is minimised.

Taking professional advice well in advance on these subjects is always strongly recommended.

CONFIRMATION OF INCOME FOR MORTGAGE PURPOSES

Many mortgage lenders now request a copy of the official HMRC tax calculation (SA302) as confirmation of income. As the result of lobbying from the accounting profession, there has been a change of heart. From January 2015, self-employed individuals with a self assessment online account can provide proof of their income by downloading copies of their Tax Calculation and their Tax Year Overview from the HMRC online service, which will be the evidence they need to support a mortgage application.

Accountants/agents acting can print these documents on your behalf; these are acceptable to support your loan or mortgage application. There is still a conflict between planning to minimise income for tax purposes and declaring a higher level of income to support a mortgage application so let us know if you are planning to apply for a new mortgage.

TAX DIARY OF MAIN EVENTS FOR MAY/JUNE 2015

Date What's Due
01 June Corporation tax for year to 31/8/14
19 June PAYE & NIC deductions, and CIS
Return and tax for month to 05/06/15 (due 22 June if you pay electronically)
01 July Corporation tax for year to 30/9/14
19 July PAYE & NIC deductions, and CIS
Return and tax for month to 05/07/15 (due 22 July if you pay electronically)