Lifetime Mortgages Becoming More and More Flexible

Some of the additional features of the Lifetime Mortgages are as follows:

1) You can borrow an initial sum and arrange a facility so that you can take further funds later.

2) While normally a Lifetime Mortgage can only be done on an owner-occupied residential property, there are now some lifetime mortgage lenders who will consider lending on a let property. This can be a very useful option for landlords who do not then have to sell the property to raise funds for care or for other purposes. In principle the landlord could even pass the property down to their beneficiary.

More Magic!

A Mortgage Which Requires No Payments; With No Income Requirements; For Any Purpose!

Another Financial Tool Starting at Age 55

I am talking about the Lifetime Mortgage where the borrowing is based only on age and property value. These have become more and more flexible so you can either opt to make no payments with the mortgage repaid on sale of the property, or you can choose to make interest payments so the amount you owe stays the same. With Lifetime Mortgages the older you are the more you can borrow! As there is no fixed term to the mortgage, you do not have to worry about having to move out or come up with a large lump sum in your future years.

Here are some examples of what the maximum borrowing might be on a property with a value

of £300,000:

Age 55 £76,000 (25% of value)

Age 60 £97,000 (32% of value)

Age 65 £112,000 (37% of value)

Age 70 £127,500 (42% of value)

Age 75 £144,000 (48% of value)

Age 80 £156,000 (52% of value)

COMING OF AGE!

It is time to look at the advantages that come with reaching the larger numbers of years of age!

Age 55 – A Magic Age of Pension Freedom

Reaching age 55 is a milestone and with that milestone comes access to your private pension benefits. Here some key points for the 55er’s amongst us to be aware of:

• You don’t have to retire to take your pension benefits. You can continue to work and even continue to pay into a pension.

• You don’t have to take all of the benefits at one go – you can take the tax-free cash and leave the rest to build up. You can then draw out additional amounts whenever you wish (note: whatever you draw out over and above your tax-free amount is taxable). • You can take all of the benefits immediately if you want to (but there can be significant taxes to pay!).
• At any time from age 55 onwards you can take the benefits. • Previously you had to take out a lifetime annuity with all of your pension except the tax-free cash element. That is no longer true although you still have the option to use some or all of your pension fund to buy a lifetime annuity (which will give you a guaranteed income for life) – see section on annuities in this newsletter.
• If you do not need the pension benefits, you can create a very tax-effective life assurance arrangement by just leaving it invested and nominating who you would want to receive it. You can change your mind about the beneficiary at any time.

• For those lucky few who have what are called “final salary” pensions, the options above generally will not apply but the income you will enjoy will probably more than make up for it.

• Warning – this access to the magic circle of your pension funds will not always be pegged at age 55. As the Government increases the State Pension age in the future, they are committed to also increasing this minimum pension age.

(Note: these are only approximate levels of borrowing. In some cases it may be possible to borrow somewhat more than what is shown above and in other cases, the borrowing that is possible may be less. Interest rates vary depending on the lenders and the level of borrowing. Usually they are fixed for the term of the mortgage and vary from 3.9% upwards. In the case of a couple the borrowing will be calculated on the age of the younger. The Lifetime Mortgage has to be the only mortgage on the property.)

THINKING AHEAD!

We cannot stress enough the importance of thinking ahead when you get to the age which qualifies as ”older”. This is very much a personal matter but if we are blessed with a long life, it is likely that the time will come when we will need help – whether that be physical help or help in looking making decisions about finances. We would recommend that those reaching retirement age look into Lasting Power of Attorneys (LPAs). These allow you to appoint who you want to help you, should the time come when you need help.

In thinking ahead, making a Will is also a vital action, but that should be done really as soon as you start a family or acquire assets that you would want to pass down to specific people.

NEW TAX ALLOWANCES

Here are the new tax allowances effective from 6 April 2018:

• Personal Tax Allowance (the amount you can earn before paying any tax at all) goes up to £11,850 per year;

• Basic Rate Tax Band goes up to £34,500 per year (so a person would have to earn in excess of £11,850 plus £34,500, i.e. £46,350, before they would start having to pay 40% tax);

• Capital Gains Tax (the amount of profit you can make on a transaction such as sale of shares before you have to pay tax) goes up to £11,700;

• Inheritance Tax nil-rate band (the amount that an estate has to be valued at before an Inheritance Tax/Death Duty has to be paid) stays at £325,000 but the extra allowance, which can be achieved by leaving the main residence to direct descendants, goes up to £125,000;

• The ISA (Individual Savings Account) limit remains at £20,000;

• Rent-a-Room Scheme tax allowance remains at £7,500 per annum (this is from the letting out of furnished accommodation in your home).

PENSIONS USED AS LIFE ASSURANCE OR INHERITANCE PLANNING

The new Flexi Pension Plan rules have opened up new opportunities for pension plans to help with life assurance and passing the pension down to beneficiaries in a tax-efficient way. If you have a personal pension plan (these rules generally do not apply to Final Salary/Defined Benefit Pensions), you can nominate anyone you want to be the beneficiary. If you die before age 75, the value in the pension can pass to the beneficiary with no tax at all (!). If you die after age 75, it still passes to the beneficiary but would be taxed at the beneficiary’s tax rate. The beneficiary can also opt to set up his own flexi-pension with the monies and would be able to take money out when he chose, or even leave it to a beneficiary of their choosing.

WORKPLACE PENSIONS/AUTO-ENROLMENT

Those with a pension in their workplace will have an enforced increase to their pension contributions

from the 6th of April. Instead of both the individual and the company putting 1% of their salary into

the employee’s pension, it increases to 3% by the employee and a minimum of 2% by the employer. Someone earning £20,000 could find his monthly contribution going up from £14.00 or so per month to £40.00 per month. While that may not be a welcome extra cost, do remember that the increase also means more from the employer and, taking into account the additional amount the Government has to put in, that £40.00 per month taken from the employee would end up with them getting £83.00 in their pension – over 100% return on their money. Not bad!!