ISA v Property?
A lot of people think owning a second property is a good way of securing an income in retirement and a client recently asked me to close his ISA account to buy one. I wrote to him:
Your ISA accounts do not need a building survey before you invest.
Your ISA accounts do not need a solicitor to search the land registry etc. before investing.
Your ISA accounts do not pay fees for finding tenants and letting agreements.
Your ISA accounts do not pay punitive Stamp Duty on purchase.
Your ISA accounts do not need maintenance or buildings or contents or liability insurance.
Your ISA accounts do not pay council tax, water rates, and sewage rates.
Your ISA accounts do not need inspections for electricity gas or safety certificates.
Your ISA accounts do not need to find alternative tenants if one leaves.
Your ISA accounts will never not pay you the rent.
Your ISA accounts pay you tax free income, not taxable income at maybe 40% or more.
Your ISA accounts do not pay capital gains tax at up to 28%
Your ISA accounts are readily accessable to you at any time in whole or part.
Your ISA accounts do not suffer Estate Agents or Solicitors fees for selling them.
Your ISA accounts can be sold wholly or in part to raise funds at any time, tax free.
Your ISA accounts do not have to be reported to the Inland Revenue.
Your ISA account will not call you at 2.00 a.m. to tell you there is no heat or hot water.
There are other reasons and of course ISA accounts do have charges to meet but second property ownership even without a mortgage is not something to be entered into lightly. See an IFA to discuss your objectives and needs and then decide what’s right for you.
Tax rules can change so use the allowances while they exist. See your IFA to ensure you use your full allowances and to arrange a transfer from Cash to an Equity ISA if it’s right for you. Contact Steve or Georgina on 01277 630873 .
What is the Residential Nil Rate Band
No one needs reminding of the fact that
house prices have shot up over recent times.
We have mentioned several times in these columns how often we see
recently bereaved clients facing an unexpected inheritance tax bill.
Until now there has been one tax free amount below which inheritance tax is not payable. This is known as the Nil Rate Band and has been frozen at £325,000.
From April 2017 an additional allowance, called the Residential Nil Rate Band (RNRB), will be introduced. This will provide an additional amount that you can pass to your loved ones when you die without them having to pay inheritance tax.
The RNRB allowance starts at £100,000 per individual and will increase annually by £25,000 until 2020/21, by which time it will have reached £175,000. After that time it will increase in line with inflation. This means that an individual could potentially receive a combined Residential and Nil Rate Band Allowance of £500,000.
A husband or wife can transfer their unused RNRB allowance to their surviving spouse on their death. This is where the headline that you may have seen in the media comes from, as it provides a potential £1 million relief, made up of the total combined allowance of a married couple.
As you might expect, there are some ‘buts’! An individual is only entitled to claim relief on one property and those inheriting the money must be closely related, for example children, grandchildren, adopted/fostered children, or step-children. It will be the job of the executors of the will to claim these reliefs.
All this has implications on existing wills, especially if your will contains a trust or you have specified that gifts are dependent upon children reaching a certain age. However, with careful planning, your will can be made in such a way that everyone is looked after appropriately, while your loved ones still benefit from maximum tax reliefs. Our advice would always be to take advice!
Birkett Long LLP is authorised and regulated by the Financial Conduct Authority (No: 654458)