News Updates - October
17th October 2019
Tax reliefs for wealthy under the spotlight
Savers and investors could be slapped with an extra £120billion in tax over five years under a major shake-up of capital gains tax touted by an influential think-tank. Capital gains tax on people's wealth held in investments and the sale of second homes and buy-to-lets should be hiked to income tax levels, while the annual exempt allowance of £12,000 should be slashed to £1,000, it says. A tax raid on entrepreneurs was also outlined by the Institute for Public Policy Research, which could see those who have built up companies lose their special 10%. The tax grab could be even greater if combined with a separate idea to scrap the current CGT exemption for people's main properties - a new homeowner tax recently floated in a report commissioned by Labour. Under the Just Tax plans published by the Institute for Public Policy Research today, a basic rate income tax payer would face a CGT hike from 10% on investments and 18% on home sales to 20% across the board. Higher or additional-rate taxpayers currently have CGT levied at 20% on their assets and 28% on properties which are not their main home. They would see their CGT rates soar to their income tax levels of 40% and 45% respectively, according to the report.
Weak property price growth
Asking prices for British houses put on sale in October showed the smallest seasonal increase since the financial crisis, as all but the most determined sellers waited for greater certainty over Brexit, industry figures showed on Monday. Rightmove said that the average asking price for homes sold via its website was 0.6% higher in October than in September, well below the average 1.6% rise seen for the time of year and the smallest increase since October 2008. With upward pricing power now pretty flat, some sellers who are motivated by maximising their money seem to be holding back. They may be waiting for more certainty around both achieving their price aspirations and also the Brexit outcome. Up to now we have seen a slowdown everywhere but in the jobs market and in the consumer economy. A decline in consumer confidence this quarter, combined with a fall in official unemployment figures, show that the period of remarkable resilience may be coming to an end.
IMF concerned about alternatives
Alternative assets are so hot right now. And the IMF is worried. Whether it be venture capital, private equity, real estate, hedge funds, art, jewellery, infrastructure, classic cars or music royalties, pension funds have never been more exposed to this cohort of financial assets. Very low rates have prompted institutional investors like insurance companies, pension funds, and asset managers to reach for yield and take on riskier and less liquid securities to generate targeted returns. For example, pension funds have increased their exposure to alternative asset classes like private equity and real estate. What are the possible consequences? Similarities in portfolios of investment funds could amplify a market sell-off, and illiquid investments by pension funds could constrain their traditional stabilising role in markets.
The rise of the 40 year mortgage
When you think of a mortgage term you most likely think 25 years. But it would appear increasing numbers of lenders are allowing borrowers to extend their mortgage to a maximum of 40 years. Advantages of extending the mortgage term to four decades are that the repayments are lower over a monthly basis. However, on the flip side of the coin, it also means borrowers are extending the period over which they are paying interest and therefore could end up paying more over time. While a longer-term mortgage will reduce your monthly repayments, the additional interest that accumulates over an extended period could be considerable. For example, a £250,000 mortgage with a rate of 2.5% over 25 years would result in a monthly repayment of £1,121 with total interest of £86,463 over the term. The same mortgage taken over 40 years would reduce the monthly repayments to £824 but would increase the interest to a total of £145,733 over the term. By extending the term to 40 years, borrowers would be increasing their interest payments by nearly £60,000. Particularly important to bear in mind is the fact that an extended mortgage term may go beyond pension age, so it is imperative that these borrowers consider their options and attempt to make provisions if their personal circumstances change.
Don't forget the Child Trust Fund
When it comes to saving money, many people will chose to put some aside for their children’s future. However, a Child Trust Fund set up by the Government could mean children already have up to £1,000 in the bank. Although many will save money for their children’s future, one scheme means their child could already have up to £1000 in a Child Trust Fund. This is a fund set up by the Government which automatically gives children a sum of money at different stages in their lives. The money is deposited automatically and it can be claimed when children reach a certain age. On top of this basic payment, low income families received double payments each time and could have as much as £1000 saved per child. Even if parents did not open a Child Trust Fund account, they will still be able to access the money as the Government will have automatically opened the account and deposited the money on the child’s behalf. This benefit applies to all children born between 1 September 2002 and 2 January 2011 and only applies to those who are eligible for child benefit. The money is available to access when the child turns 18-years-old. At this stage, the savings can either be reinvested into a similar adult ISA or can be used to fund immediate expenses such as university fees.
House price growth lowest in six years
House price inflation in the UK has stagnated since the Brexit vote amid ongoing uncertainty and political turmoil. In a signal of Brexit's negative impact on the housing market, September was the worst month for house price growth in the UK for more than six years, according to mortgage lender Halifax. After increasing by 1.8% year-on-year in August, house prices rose by just 1.1% last month. Month-on-month, house prices fell by 0.4% in September after growing by 0.2% in August. Not a single one of the UK's biggest cities saw annual property growth edge above 5% in August for the first time since 2012. According to a new index published by property website Zoopla, the market is in the process of adjusting to more realistic pricing. At the time of the referendum in 2016, the Halifax index was indicating house price growth of about 8% a year. But with the economy largely struggling and the outlook highly uncertain, experts suspect that house prices will remain soft in the near term at least.
Stamp duty take down
The Treasury's stamp duty haul has fallen by more than at any point in the past decade, as fears of Brexit continue to hit the struggling housing market. Stamp duty receipts from residential property fell by more than £900m in 2018-19 to £8.4bn, figures released by HM Revenue & Customs show a 10% decrease. It marks the largest drop since the financial crisis decimated house prices in 2008 and follows on from almost 10 years’ of steady increases. It comes as house price growth has slowed to the lowest level in years, just 0.7% according to the latest figures from the Land Registry. Prices in the South East and North East have fallen by 2% and 2.9% respectively. Purplebricks is calling on Boris Johnson to follow through on his Stamp Duty promises. Purplebricks says this would bolster the UK economy by £6bn and bring around 130,000 more homes on to the market each year. Johnson has previously said he would raise the Stamp Duty threshold – where it starts to be paid – from £125,000 to £500,000, and cut the highest rate of Stamp Duty from 12% to 7%. Almost a third (29%) of UK home-owners say Stamp Duty is the number one factor which would stop them from purchasing a new home, according to research commissioned by Purplebricks. If the proposed changes to Stamp Duty materialise, 90% of people moving home wouldn’t have to pay Stamp Duty and 15% more properties would come on to the market each year. Although Stamp Duty receipts would decrease by around £3bn there would be an overall net boost to government revenue of around £1bn due to associated spending and increased economic activity.
State pension age changes: MPs say Pension Credit should be extended to 1950s women
Women affected by the controversial state pension age increases should be entitled to access Pension Credit as compensation for the financial hardship they are facing, cross-party MPs have said. Labour's Carolyn Harris and Tim Loughton, a Conservative MP, said they would not rest until we get justice for all women affected by these changes. It comes after two women who took the Government to court over the changes, which have increased women's state pension age from 60 to 65, lost their landmark legal fight. About 3.8 million women born in the 1950s have been affected by increases to the state pension age, which are aimed at equalising it with that of men’s. The retirement age will move to 66 for both sexes by 2020, ahead of further increases in the coming decades. The women claim they were not given adequate notice of the changes to prepare for extra years without their pension - although the Department for Work and Pensions (DWP) maintains they were "clearly communicated". The situation, the women say, has left them financially struggling in their early sixties, or having to work far longer than expected.