We’re going to use this page to answer the questions you send us at Moneysucks? What bothers you about your money and what annoys you as a consumer? What should you do with that huge lump sum that’s burning a hole in your bank account, or which loan should you pay off first? What’s the best way to sort our your monthly budget or how can you retire at 40? Which retailers offer great service and which ones couldn’t spell the word? What do you do when your brand new laptop breaks down after a week or your Blackberry won’t let you send text messages any more. Whatever your money and consumer issues we want to help.
Here’s a selection of your questions and comments from the last time we tried this:
Q. I have a question on the link between child benefit and the state pension. At the moment it is my understanding that a person receiving child benefit receives NI credit towards the 30 years required for a full state pension. As you know the child benefit will be removed for the person receiving child benefit if her husband/wife is a higher rate taxpayer- this seems unfair to have the wife/husband penalised in retirement for the spouse’s income. It may even be that when the carer retires she/he is not even married to the same person but has been penalised- do you know if that is the case- if so Money sucks!!
A. Good question David. My initial response would be that it’s not as simple as saying that someone receiving child benefit will automatically receive NI credit towards the 30 years required for a full state pension. There are other requirements that need to be satisfied before receiving NUI credit and these other requirements will vary from person to person. To be on the safe side I have asked the Department of Work and Pensions to look at your question and come back with a fuller answer so hopefully I’ll be able to get back to you soon. I know that there is a large scale review of the benefit system going on at the moment and it may be that any answer from DWP will reflect that but I should be in a position to answer you more fully next week.
Colin Kennedy asks a question about renting out a room in his property:
Q. I work in Crawley during the week but live in Scotland at weekends. I have a second home in Crawley and I rent out 3 rooms. I have a business which is dormant, but could I use this business as a vehicle to purchase my house in Crawley and rent it out to my tenants and myself? What benefits would I derive from this? Love the website and looking forward to your insight!
A. You could certainly use your business to purchase the property that you already own and then rent it out to others although presumably your business, if it is dormant, will not have the required funds and so effectively you would need to look at the transfer of the property to company ownership rather than your own unless your business can raise the funds to purchase the property from you.
Either way the first issue for you is that you are personally disposing of the asset and may be creating a capital gains tax liability for you since it is not your main residence.
Whether it makes sense for you or the company to own the property is in no small way dependent on your tax position. If you own the property then any rental from your tenants, after deduction of allowable expenses, will potentially be taxed at your highest rate. If the company owns the property then any profit will be liable to Corporation Tax but you may decide to retain the rest in the company until you need it. This avoids any further personal tax but means that you can’t use the money.
A further complication may be that if you transfer the property to your company, and you are a Director and employee of that company, then you may find that HMRC argue that you living in the property is a benefit in kind and that may have tax implications for you.
I hope you find this information useful but please come back to me if you have any further queries.
Jack Fraser asks an ISA question:
Q. I am the student who asked about the pension, but I would like to answer just another quick question on a different matter! If I use up my full cash ISA allowance with cash this tax year, does any interest gained on that count towards the allowance?
A. Very simple answer to this question – no! The allowance relates to cash invested in the ISA – whether Cash ISA or Stocks and Shares AIS and any interest or growth in the value of your ISA won’t mean that you are exceeding your allowance, or eat into the next year’s allowance either.
Margaret Cunningham has come into some money and wants to know what to do with it.
Q. I have just inherited £22,000. The money is sitting in the Royal Bank of Scotland at the moment. Can you give me some advice how I should invest it, please?
Thanks and greetings from Germany
A. The answer to this one could go on forever and depends on so many different questions that I don’t know the answer to at the moment. These questions would include, in no particular order of importance:
Are you living in Germany and is the money in Germany or the UK?
Do you have debt that you could do with paying off?
How long will it be before you need the money?
How much risk do you want to take with your investment – are you an under the pillow type or is the 2.30pm at Cheltenham more your style?
Do you have other investments?
Could your pension do with a boost?
What is your income tax position?
So as you see it’s not an exact science. And these are only a sample of the questions you would want to consider before making a decision. The starting point is to examine your current situation and for you to decide what it is you would like the money to do for you. If you have any debt – mortgage or non-mortgage – then it might makes sense to pay that off since it might be costing you more in interest than you will receive on money you invest. If you have no debt and you want to put it away somewhere for a ‘rainy day’ then it would be a case of looking at how to do that tax efficiently and with a level or ‘risk’ that is acceptable to you and for a length of time that suits.
And Cathy Austin has a question on the finances of long-term care.
Q. I saw the piece you did on financial advice on long-term care on BBC the other night. My father is in a care home in Scotland. He pays his care-home fees from his “savings” (house sale!) The bank manager told us that it is possible for him to gift £3000 to each of his children & £1500 to each grandchild, each year, which would obviously reduce his capital, without the authorities being able to question this. Do you know if this is the case? We don’t want to do anything dodgy, just want to know if this is correct.
A. Maybe is the perhaps unhelpful answer! The £3000 and £1500 limits that your bank manager talked to you about are the maximum amounts that can be ‘gifted’ to children and grandchildren annually so that they don’t form part of your father’s estate for inheritance tax purposes – and there is often confusion about the rules on Inheritance Tax and the rules that apply to care issues. The local authority is not interested in IHT rules, only that your father hasn’t given money away to ‘deliberately deprive’ his estate to save him paying for his own care. So whether your dad gifts his children £3000 or £30,000 the local authority might want to know why. It may do his case no harm if he is able to explain that it is part of a tax planning exercise.
June is concerned about the tax implications of selling her house
I have some questions for you on private letting of houses. I’m really confused what to do for the best. I have worked really hard and now own 2 properties which currently have tenants in them and which I have lived in for a number of years. I moved out of my last house which currently has a residential mortgage last year as wanted to move areas and now I am currently a tenant myself and renting privately.
I did want to sell my house that has a residential mortgage as I don’t want to get into the dilemma of capital gains tax. My plan was to sell and buy another house for me to live in in my current area so that I no longer rent. However my issue is my income has now dropped being a single mum and it is highly unlikely I would get a mortgage.
I am trying to decide the best thing to do this year about selling. I am currently getting an income from both properties which luckily is helping me pay my rent. Also it means I am still in the property market. I am getting increasing worried that I will lose a large percentage of what I have worked hard for in capital gains tax. I have accepted the fact that I will need to pay some tax on the first property however I only moved out of my last house last year and my plan was always to sell and buy my main home in my new location. However now I am thinking maybe not to worry as it is helping me stay afloat. I could just sell both properties and be mortgage free but I am still in my 40s and am looking at more of a long term picture.
What advice would you give? To sell or not to sell to avoid the tax conundrum!
You have raised some interesting questions here June. Let’s deal with Capital Gains Tax first of all. You are correct when you say that you have to pay CGT when you sell a property that is not your main residence, in other words it is an investment property. CGT will be payable at either 18% or 28% on the gain that you make when selling the property. We all have an allowance each year, an amount of money that we can make before CGT kicks in.
This year it is £11,100, and that is the amount of profit that you could make before you start to pay CGT. The rate that you pay tax will be dependent on your income in the year that you sell. If the profit from the property when added to your income takes you into the higher rate tax bracket then you will pay at 18%, if you are in the higher rate then you will pay tax at 28%.
It is important to note that you only pay tax on any profit you make, so if you have to pay 18% tax then you get to keep the other 82% of your profit, and that’s really not a bad deal. There are also expenses that can be offset against your profit before your final tax bill is calculated.
There are also rules in force that say that a house you currently rent but have lived in recently can be exempt from CGT. The rules are complex and I don’t know enough about your circumstances to give detailed advice at this stage but if you want to write to me again with more details of the properties and dates then I can expand on this.
You say that you could sell both properties and be mortgage free but you would then have to decide what to do with the equity you received and think about whether you are getting a better return being in property than you could get if you did something else with the money. You are right to be thinking long-term with your investment properties and there is no harm in having mortgage son these properties since someone else is effectively paying them for you at the moment so it is free money, and you also have the possibility of an increase in capital value in the long term.
I would stress that I don’t know enough about your general circumstances at this stage to give you specific advice, but from what you have said so far I wouldn’t be in a great rush to sell, unless you desperately need the money for something else.