Tag Archive for 'property'

Releasing Equity From Your Property

Published
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Property Know Team
on June 22, 2008
in Property Know
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From all previous posts I don’t think we at property know have ever talked about property for the older generation. If you’re over the age of 54, your property is most likely to be your biggest asset, if some of you readers are living in the UK you may have seen advertisements about releasing equity from your property, these sorts of advertisements are getting ever so popular recently. Now you might be asking what is equity?  Equity is the market value of ones property minus the liability attached to the property which is generally a mortgage. Nowadays homeowners are given an opportunity to use equity release schemes to enable them to gain access to the equity in their property and then they can spend that money. The money can be paid as a lump sum, spread out over a period and used as a monthly income or used to buy annuity that will pay an income for life (for older homeowners looking for retirement). Providers of the schemes are fully regulated by the financial services authority, as are the brokers who give advice about equity release. The schemes available are home reversion plans and lifetime mortgages. Whichever scheme is chosen, you will be guaranteed the right to reside in your property until you sell the house, move into long term care or you die.

A lifetime mortgage is a mortgage secured against your property with no repayments to make until you move out or die. The advantages of using this is that you and your spouse (I am not to sure on civil partnerships at the moment) still own your property and will benefit from any increase in property value. Also if a “no negative equity” guarantee is implemented this ensures that regardless of what happens to house prices or interest rates, the final debt that needs to be repaid will not exceed the sale value of your property. But the downside is because none of the debt will have been paid during your lifetime, the interest will roll up for as long as you live in the property. The interest and original sum of money you borrowed will eventually have to be paid back by your property.

A home reversion plan unlike a lifetime mortgage is not a loan. You yourself will actually sell or a share of it to the equity release provider while at the same time retaining the right to live in the property rent free for the rest of your life. The advantage of this is that as it is not a loan there is no interest to pay. When the property is sold, the company will take a percentage of its value, if you sell 50% of your property then your estate is guaranteed to receive the other 50% of the property value as inheritance. The downside to his is since you will be still living in the property the scheme provider will not offer full market value for the percentage you are selling. If you die immediately after taking out the scheme you will have sold your home for far less then its worth. The amount offered for your share of the property will depend of your life expectancy. The greater your life expectancy, the less you will receive.

Making money from your property? – Part 1, TAXATION

Published
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Property Know Team
on June 13, 2008
in Property Know
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From previous posts we have mentioned buying to let is an option that people should consider getting into. But becoming a landlord can be a scary and complicated procedure. The main worries when becoming a landlord are things like tax, HMO’s letting agents etc.

When tax is involved in anything it worries most of us, unless you use an accountant people are generally unsure about tax and when letting is involved it is no exception to tax. As a landlord you will be liable to pay income tax on the income received from renting . The tax you will be charged will be at the highest rate of income tax you pay. But there are ways to deduct the amount of rental tax you are required to pay as landlord.

•    Fee’s (Letting Agents, Accountants)
•    Insurance (White Goods, Gas Boilers, Plumbing)
•    Advertising Costs for the property
•    Cleaning Costs
•    Maintenance Costs
•    10% of the annual rent after council tax, for maintenance
•    Interest payments on the letting property
•    Service charge, buildings and contents insurance during tenancy period

All the above can be deducted from the income made from the rent, this then in turn reduces the amount liable towards income tax.

Another tax that a landlord is liable to pay is CGT. Capital gains tax is a tax which is applied when a non inventory asset is sold for more then its bought price, in our case property. You would be CGT exempt if the let property was formally your former residence, but the property must be sold within 3 years it was turned into a rental property. CGT is calculated by taking away the original price from the sale price, you are only liable for CGT on “the gain” of the sale. (The gain is the profit made from the sale of the property, the part which is liable to be taxed by CGT) The proportion which the gain is taxable is dependant on the length of time you have owned the property. You would be liable for 100% of CGT on the gain if the property is sold within 3 years of acquisition. After the 3 years the proportion of CGT you are liable for is reduced by 5% per year. So after 3 years you would pay 95% CGT and after 4 years it would be at 90%. This will carry on going down until you have owned the property for 10 years , you will then be liable for 60% of CGT regardless of how many more then 10 years you have owned the property.

This is the end of part 1 of making money from your property stay tuned for part 2. Where we will talk about HMO’s, what you need to know about letting agents, student lets and more.