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can I use equity release to pay for care?

It’s one of the scary things about growing old, isn’t it? We’re all living longer, thanks to medical science but does that mean more of us are going to end up in a care home, struggling to find the means to pay for it?

A year in a care home can cost more than £50,000. This means some families are accumulating huge bills. If you have assets of more than £23,250 (slightly more in Scotland and Wales), the law states that you must fund all your care costs yourself, without any help from the Local Authority. This figure includes property, so if you have your own home, you won’t be eligible for any support.

As a result, many families are finding themselves facing a significant gap when it comes to funding care for their loved ones. This added financial burden comes at what can often be a sad and stressful time anyway.

One way some families are funding the cost of care is through the value of their home; equity release or a lifetime mortgage, as it is sometimes known. This allows anyone over 55 to borrow against the value of their home. You can draw money to about 50% of your property’s value and there are no monthly repayments. The interest rolls up at a compound rate until the person borrowing the amount dies. To protect you, the total debt can never exceed the value of your home and will be cleared from the eventual sale of the property.

It’s worth noting that interest rates tend to be higher than standard mortgages but there are no affordability checks or repayment plans. You can decide whether you take the money as a lump sum or in stages.

There are different ways of using equity release. Most people would prefer to stay in their own home for as long as possible rather than move into a home, so one option can be to use the money to make home improvements and adapt the property to their needs as they grow older. Installing a wet room or a moving a bathroom downstairs, for example, can often be practical solutions.

It is more difficult to use equity release to fund care home costs. In fact, according to a Daily Telegraph survey in 2017, only 1% of respondents gave that as a reason, compared with debt repayment, inheritance gifts, home improvements or to boost disposable income. The complexity stems from the fact that the repayment of the loan is often triggered by the very act of someone moving into long-term care. If one half of a couple, however, needed to go into a care home, it does mean that the property would not need to be sold to repay the debt until their partner died or moved into the home with them.

It’s obviously difficult to predict the length of someone’s stay in a care home so equity release may not always be a straightforward decision but, in some cases, it can be a useful option for quick, upfront funding.

over 60s are jumping off the property ladder. Here’s why….

In 2007, there were 254,000 older people living in private rented accomodation. According to research by the Centre for Ageing Better, over the last decade that figure has skyrocketed to 414,000. If things continue the way they’re going, they estimate that over a third of those over 60 will be privately renting by 2040.

So why the shift? Renting comes with some clear benefits. Having to pay stamp duty becomes a thing of the past, as does worrying about managing property maintenance. A certain sense of freedom comes with renting too, particularly in terms of location. It’s a great opportunity to finally live on the coastline or in the city centre that you’ve always wanted to, but have not been able to afford to.

For example, one couple had previously owned a retirement flat in Torquay which they subsequently sold for £55,000. They dreamed of moving to Bournemouth, where a modest one bed apartment would have set them back closer to £150,000 and so was out of their reach. They found a home to let on an assured tenancy, allowing them to remain in the property for life for a fee of £775 a month including service charges. Selling to rent has allowed them to liquidate their biggest asset, and free up their capital to spend on travel.

Renting needn’t be forever, and for some people it’s a great opportunity to stop and think about your next move. It can give you time to really look at the options out there if you intend to get back on the housing ladder. Your requirements will change as you grow older and downsizing can be a great idea for some. Before you find the perfect property which will suit your needs going forward, renting gives you the chance to release some capital and decide what to do with it.

It’s worth bearing in mind, though, that by selling up and moving into private rented accommodation, your estate could receive a higher IHT bill. The inheritance tax exemption introduced in 2017 allows parents and grandparents an additional IHT allowance when their children or grandchildren inherit their main home, and so selling your home could remove your eligibility for the exemption.https://www.telegraph.co.uk/property/retirement/renting-retirement-over-60s-jumping-property-ladder/
https://www.telegraph.co.uk/financial-services/retirement-solutions/equity-release-service/should-you-sell-up-and-rent-in-retirement/

3 top tips to prepare your kids for independent travel

It’s one thing to travel with your children or grandchildren and help them realise an appreciation for seeing the world. To prepare them to navigate that world on their own and to take control of their own adventures, is another thing entirely, but it’s not impossible.

Let them take the reins when you plan your next trip – With your years of experience and being a parent or guardian, it’s easy to assume that you’re better off taking care of all the planning yourself. You know what you like, you know where to look and you know how to make it cost effective – you’re the one footing the bill, after all. The chances are, though, that the only reason you are adept at the process is because you’ve done it before, so give them some first-hand experience and the opportunity to learn for themselves.

– Give them a helping hand, of course, show them where to find airfares and different accommodation options. Let them browse Airbnb for holiday rentals and experiences.
– Above all, keep an open mind; they’ll likely have different search criteria and priorities to you, so you never know what little gems they’ll unearth

Give them responsibilities once you arrive – Getting the trip booked is just the beginning. You can write as detailed an itinerary as you like but the map is not the territory and the real experience is found on the ground. You’ll instinctively want to take control of organisation and logistics but getting the kids involved can be an extremely valuable experience. Let them choose the route you take and suggest that they ask for directions from a local if you get a bit lost. Get them to buy the train tickets – if you’re feeling really brave maybe even let them look after your room key! The sense of responsibility will make them feel like they’re contributing and if something doesn’t go quite to plan, that can be a learning experience too…

When things go wrong, stay calm – If everything has gone smoothly on a trip then you probably haven’t left your hotel room. More often than not you’re going to run into awkward situations at least once. Something as simple as missing a bus, particularly in warmer climes where the bus stop might be lacking in shade, can lead to frustration.

– You may feel inclined to panic or shield your children from it entirely, pretending that everything is going along as expected. Your best bet really is to be honest and stay calm. Learning to ‘go with the flow’ and accepting that sometimes plans need to change is essential to successful and happy travelling.
– Sometimes a spanner in the works can be a great thing; you may have missed the last bus to the museum but if you hadn’t, you wouldn’t have found that local tavern with the paella you’ll
never forget. Those statues have been there for hundreds of years – we’re sure they’ll wait until tomorrow.

   Sources:  https://www.wanderlust.co.uk/content/how-to-teach-your-child-to-travel-independently/

small changes to small fortune-how car boot sales can prove lucrative

When it comes to a robust investment plan, rooting around for hidden treasure at car boot sales can’t really be held up as particularly reliable. However, there are plenty of examples of people picking up bargains from a car boot which have gone on to make them a considerable profit once their true value has been realised.

One case highlighted a diamond ring which was bought for £10 in the 1980s at a car boot sale in Isleworth, London. The owner believed it was simply a piece of costume jewellery, mainly due to the fact that it was cut in an older style and therefore didn’t sparkle in the same way as modern diamonds, and had worn it daily since buying it. However, once it had been identified as a genuine 26 carat gemstone, the diamond was expected to make £350,000 at auction and eventually sold for almost double that amount – £650,000 – at Sotheby’s.

Another car boot purchase for just £10 was a Chinese floral vase. The buyer initially put it on eBay, but when they received bids up to £10,000 they decided to withdraw it from the internet auction site to seek a professional opinion on the piece. It turned out to be a rare enamel vase made in the 18th Century and was given a guide price of £30,000. When it finally went under the hammer, it made over twice as much, selling for £61,000.

A cartoon by British artist HM Bateman was another car boot find which ended up making a sizeable profit, but only after sitting under the buyer’s bed for two years. The frame became broken when they moved house, so instead of repairing it, the buyer simply stored it away. When they finally rediscovered it and researched just who it was drawn by, it was eventually given an estimated auction value of between £500 and £800, eventually selling for £1,100. Not bad for a picture originally bought for £2!

So, whilst it’s not a good idea to place all your financial plans on making your fortune selling a long lost antique purchased for a few quid, maybe sifting through trestle tables on a Sunday morning is more worthwhile than you might initially think.


Sources
http://www.bbc.co.uk/news/uk-39998569
http://www.bbc.co.uk/news/uk-england-london-40196565

5 top travel tips to make your holiday easier

Holidays can be expensive, that’s for sure. Getting everything organised for your trip can be quite a challenge, too. So we’ve compiled these simple tips to save you money and allow you to enjoy your time away to the full.

Scanning travel docs
It’s a good idea to scan your travel details, passports and insurance information then email them to yourself. That way, if the worst happens and they get lost or are stolen, it will make it much easier to get your documents replaced by embassies or travel companies if you can produced your scanned copies.

Paying with your card, not currency
Gone are the days when you had to get your currency before you travelled. So why not avoid the stress of queuing at the bureau de change and make the decision to pay mainly by card while abroad. It will take one thing off your To Do list and paying with a card is usually cheaper than changing money at the airport anyway. You can always use the ATMs abroad for some extra cash and paying by card is safer and more convenient.

Avoid ‘squanderlust’ at the airport
The shops and cafes in departure lounges know they’ve got a captive audience but do try and resist the temptation to go on a spending frenzy as you while away the time before your flight. Research shows that a third of Britons admit to blowing any leftover cash at the airport once a holiday ends. So take time to consider whether you really need a pair of overpriced gold flip flops. Is that bottle of bizarrely coloured liqueur truly an amazing offer or is it going to languish at the back of your drinks cabinet once you get home?

Book in advance
Pre-book as much as you can before you go to save time and money. Not only can you get excited at planning all your excursions in advance, it is much cheaper and you can enjoy a sense of satisfaction as you bypass all the queues. Hiring a car is usually cheaper if you do it in advance, so take advantage of all the comparison websites online to find the best deal.

Pay it forward
You’ll have seen the charity collections at the airports for unwanted currency. With 86% of Britons admitting to having leftover change, it’s a nice gesture to donate any change that’s just going to gather dust at home, before leaving the country. Figures show people have an average £36 of leftover currency. Of course, you could save it for your next trip, provided of course you’ll remember where you put it, but if you’ve enjoyed your well-earned break, why not pay it forward?
Sources
https://www.telegraph.co.uk/travel/family-holidays/visa-family-travel-tips/travel-hacks-to-make-your-holidays-easier

Is the bank of mum and dad ‘feeling the pinch’?

The bank of Mum and Dad’ will lend enough money to the next generation of UK homeowners in 2018 to make it the equivalent of a top 10 Mortgage Lender. With £5.7bn expected to be handed over to help family members get a foot on the property ladder this year, you could be excused for thinking that things were on the up. Everything is relative, however, and when compared to 2017’s enormous lending figures of £6.5bn, the numbers tell a different story.

L&G are still expecting more than a quarter of home buyers to be getting financial assistance from relatives, with the amount actually seeing a small increase from 25% to 27%. So with close to 317,000 housing transactions expected to take place with parental help this year, how do we account for the £800m drop in lending?

The short answer is that, due to the current position of the economy as a whole, people are feeling the pinch. Although the sheer volume of individual transactions is increasing, the amount lenders are able to provide is going in the opposite direction. In 2017, the average contribution was £21,600, in 2018 that figure is expected to be down 17% at £18,000.

Interestingly, although unsurprisingly, this is a regional phenomenon, with a higher percentage of buyers in London (41%) receiving help from their relatives.The age of the buyer also affects the likelihood of lending, but by no means is it exclusive to younger buyers. Three in five under-35s are expected to receive help, but so are 20% of those between the ages of 45 and 55.

We’re also seeing a growing trend of parents ‘gifting’ their children money that they would otherwise have received years later through inheritance. Not only does this make the money less likely to be liable to inheritance tax, it also means that the buyer can get on the property ladder earlier and thus avoid future increases in house prices. For many in financially comfortable positions, this may well be an avenue worth considering.

https://www.bbc.co.uk/news/business-44283507
https://www.bbc.co.uk/news/uk-37220688

why it pays to retire early

Sound financial planning is not only good for your bank account – it could actually improve your life expectancy. If you’re reading this then you probably don’t need to be convinced of the benefits of looking after your money, but here’s another reason to add to the list.

The idea of retiring early can be most appealing. For some, it will already be a reality, while wise saving and investment may mean it’s perfectly achievable for those at the consideration stage. Research now suggests that an early retirement can actually also lengthen your life. Economists from the University of Amsterdam published a 2017 study in the Journal of Health and Economics which confirmed that male Dutch civil servants over the age of 54 who retired early were 42% less likely to die over the subsequent five years, compared to those who continued working.

Researchers put this life-extending phenomenon down to two main factors. First, when you retire you have more time to invest in your health. Whether that means you find more time to sleep, more time to exercise or simply more time to visit a doctor when an issue arises, you’ll see the benefit.

Secondly, work can be a great contributor to stress, creating hypertension which is in turn a huge risk factor for potentially fatal conditions. In the study, retirees were shown to be significantly less likely to fall victim to cardiovascular diseases or strokes.

Of course, there can be benefits to staying in work too. Participating in a work environment is a good way of keeping your mind and body active. On top of that, being part of a team helps develop and maintain a sense of purpose and belonging that is essential to cognitive health and development.

That’s not to say that all these benefits can’t be achieved outside of work; the key is to find a hobby, interest or cause to involve yourself in. As is so often the case, there’s no single solution. It’s important to find the best path for you, whether that’s staying in work, retiring early or going part-time. Whatever you choose, spend your time wisely as it could have a major impact on how long your retirement turns out to be.

Sources
https://www.cnbc.com/2018/03/27/how-research-shows-you-can-live-longer-if-you-retire-early.html

 

5 pitfalls that put your retirement plans at risk

Imagine the scene; you’ve spent your life living frugally, saving efficiently and investing wisely. You enter your well-earned retirement financially secure and excited for the years ahead. The future could pan out in one of two ways; the first could lead to continued security and the financial freedom to enjoy your retirement as planned; the second might lead to the unfortunate disappearance of that security and the resulting stress that would involve.

The sad truth is that the things that lead people down the second path are usually easily avoidable; it’s rarely investment market declines which are the cause of a failed retirement strategy. Here are the five most common pitfalls that you can avoid through careful planning.

1. Helping too much
We all have a natural desire to help our loved ones, but helping too much can lead to harming our own plans. It’s all too common for people to dip into their retirement funds to give money to their children, grandchildren and other relatives. There’s nothing wrong with lending a hand or giving gifts, but you have to know what you can afford and stick to your limits. Don’t be afraid to admit you can’t help.

2. Buying a second home
Having your own little getaway or spending your winters in the sun may seem like a fantastic prospect, but it’s important to be realistic. A huge portion of your retirement capital can be tied up in owning a second home, and there are often unexpected costs involved. In the past you could count on property values to appreciate, but that isn’t true of many areas now. If you want a second home in retirement, make sure you have a substantial financial cushion.

3. Unmanageable debt
Debt can sometimes be considered a financial management strategy rather than something to steer clear of in retirement. Some financial advisers may recommend investing cash to earn a higher return than the interest rate of the debt, instead of paying off the debt altogether. It does, however, come with fixed expenses and if those expenses combine with unexpected expenditures and begin to exceed your fixed income, problems can arise. Avoiding debt during retirement where possible will help avoid financial uncertainty.

4. New business ventures
A lot of retirees choose to continue working and producing income in some way. Many may decide to start new businesses. If this is something you’re considering, be careful and separate most of your retirement assets from the business. Only risk capital that you don’t need to sustain your standard of living as a failing business can erode your nest egg quickly.

5. Absence of a spending plan
One of the easiest mistakes to make is not planning your spending. A lot of retirees don’t know how much money is safe for them to spend in the early years and still ensure they have enough capital to last into their later years. Surveys suggest that people believe they can spend 7% or more of their savings each year safely, however, financial planners and economists say the spending limit is closer to 4%.

Everyone’s optimal spending plan will vary and, ideally, you should revisit your estimates each year to make adjustments.

Sources
https://www.forbes.com/sites/bobcarlson/2018/03/27/the-5-ways-retirement-plans-are-most-likely-to-go-off-track/#6daba1056165

what is the tapered annual allowance and how could it affect you?

One of the key advantages of saving for your retirement through a pension scheme is the tax relief you receive on the money you contribute, usually available at your usual rate of tax. The ‘Annual Allowance’ limits the amount of contributions both you and your employer can make to your pension in a year which benefit from tax relief, and is currently set at £40,000.

However, in April 2016, the government also introduced the ‘Tapered Annual Allowance’, which reduced the annual limit for those whose total income exceeds £150,000. This amount includes your salary, bonuses, dividends, savings interest and employer pension contributions. For every £2 of income above £150,000, your Annual Allowance will be reduced by £1, up to a maximum reduction of £30,000. So that those who receive a one-off increase in pension contributions from their employer are not unfairly caught out, the government also ensured that the Tapered Annual Allowance only applies to those whose taxable income before employer pension contributions is above £110,000.

Looking at some examples shows how the Tapered Annual Allowance works. Andy receives a salary of £160,000 in the 2017/18 tax year, with a further £16,000 of pension contributions from his employer. This gives a total income of £176,000, which is £26,000 over the £150,000 limit. Andy’s Annual Allowance is therefore reduced by £13,000 (half of that amount), meaning the amount of his pension contributions which can benefit from tax relief during 2017/18 is lowered from £40,000 to £27,000.

Bethany, meanwhile, earns a salary of £195,000 in the same year, with her employer making £15,000 of pension contributions. Her income from rental properties, savings and a share portfolio amounts to £20,000, giving Bethany a total income of £230,000, exceeding the £150,000 limit by £80,000. As half of this amount is £40,000, Bethany will receive the maximum reduction of £30,000. She will therefore only receive tax relief on up to £10,000 of her pension contributions in 2017/18.

If the Tapered Annual Allowance affects you and you’re wondering whether there are any legal workarounds which can be implemented to avoid being hit by it, the short answer is that there aren’t. Of course, if your total income decreases then your Annual Allowance will increase again. But apart from either earning less or reducing the amount you and your employer contribute to your pension (neither of which is a good idea), as long as your total income is over £150,000 you will be subject to the current rules,

Sources
http://scottishwidows.co.uk/knowledge-centre/retirement/annual-allowance.html
https://www.rsmuk.com/ideas-and-insights/tax-facts-2018-2019#Pension%20contributions

 

be aware: HMRC payroll investigations on the rise

Recent figures released through a Freedom of Information Request have revealed that payroll investigations last year led to HMRC collecting £819 million of additional tax, a figure that represents a year-on-year jump of 16%.

It has been suggested that the increase is due to a ‘grey area’ over whether a taxpayer is considered to be ‘employed’ or ‘self-employed’, with this area being targeted by HMRC in order to eradicate any ambiguity and categorise as many people as possible as being employed. Doing so means that tax can be deducted at source and reduces the scope for claiming expenses. However, HMRC have denied this interpretation, stating that a taxpayer’s status as either employed or self-employed is ‘never a matter of choice; it is always dictated by the facts and when the wrong tax is being paid we put things right.’

The ambiguity over employment status has arisen thanks to the gig economy, which has recently created political anxieties for the government. Following the Taylor Report, which investigated the gig economy and made recommendations for reforms needed, the government has indicated that the ‘worker’ category will change to ‘dependent contractor’ in the near future. Dependent contractors will have worker rights that self-employed workers do not, but they won’t be considered employees, thereby straddling the current divide between the two.

Whilst this is likely to go some way to removing the grey area which is causing the controversy, introducing dependent contractor status will remove the advantages businesses currently get from using a contractor. It’s likely that a test will be implemented for dependent contractors, which will place much greater emphasis upon control. It has been suggested that such a test will ultimately place limitations on the number of self-employed people, which has grown considerably in recent years.

Whatever the reason for HMRC’s increased payroll investigations, businesses need to take extra care to ensure that their payroll is completely accurate to avoid incurring any unnecessary penalties. Communicating with whoever handles your accounts and acting on their advice wherever necessary is vital to make sure the taxman has no reason to claim additional tax from your business.
Sources
https://www.accountingweb.co.uk/tax/hmrc-policy/payroll-investigations-are-on-the-up

 

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