Apr 28, 2015

Buy to let

Should you use your pension to fund a buy to let property ?

 

Should you use your pension to fund a property purchase?more pension

New rules allow you to access your whole pension fund if you are aged 55. You may be interested to access your pension fund to pay for a property purchase. This article examines the issues surrounding using a pension to pay for a property purchase.

Background to flexible pensions

From April 2015 you are allowed to access your whole pension fund. This is known as flexible pensions. You need to be aged at least 55 to be able to access your pension fund.

To access your pension fund you need to convert your pension to a flexible drawdown plan. This permits you to take withdrawals of up to 100% of the fund, minus tax. You do not have to withdraw the whole amount.

Withdrawals up to 25% of the fund are tax-free. Any additional withdrawals will be added to your income for that tax year. This could mean that you pay significant amounts in income tax on your withdrawals

Here is an example:

• Your income: £25,000 pa
• Your pension fund: £100,000

Under flexible drawdown you can take 25% of the fund tax-free – £25,000. Any additional withdrawals will be taxed as income. Therefore, if you take the total fund you will be taxed on £75,000. Your withdrawal will be added to your income. In this case, this will make your total income £100,000 for that tax year. You will end up paying 20% income tax on part of this withdrawal, and 40% on the majority.

More money

Tax issues

You should be careful to understand the tax implications of making any withdrawals. You do not have to take withdrawals in one lump sum. You may decide that it is more tax-efficient to make withdrawals in stages, so you avoid paying too much tax.

 Pension issues

By cashing in your pension you will move your pension from paying no tax, to paying income tax on this asset.

You will also severely limit the amount of future contributions you can make to your pensions. Currently, the maximum amount that can be paid into pensions each year is £40,000. Once you move into flexible pensions you reduce this to £10,000. If you plan on making contributions in the future, you need to think carefully about whether you will want to make contributions over this figure.

Finally, any withdrawals you make now will severely hamper your future income capability. You will lose the future growth on your pension (in a tax-free environment), and you will be likely to have a reduced income later as a result.

Using pensions to fund property

Let’s assume you have done the figures and are comfortable with the risks and tax you will pay. Should you use your pension fund to pay for a rental property?

Obviously, the answer to this question depends on your personal circumstances. We recommend that you seek professional financial advice before making any decisions.

More buy to let

Here are some of the issues to consider:

• Your pension will convert from a tax-free environment to a taxable environment
• You will pay income tax on your pension when you withdraw funds
• You will lose the right to make significant pension contributions in the future

What are the merits of investing in property?

Property is a good potential source of growth and income for any investor.

Capital growth

Property tends to rise in value over time. We all know that not enough houses are being built to cope with population growth. In theory this should mean that property should rise over time, although this is not guaranteed. The past 20 years have seen good growth in property, and this should continue. Just remember that there have also been periods when property values fell.

Good source of income

Property can be a great source of regular income. If you can find decent tenants they should provide you with enough income to pay your ongoing costs, and still provide a profit. This is one of the most powerful aspects of buying a property since the income should be regular and ongoing. When you add the income to the capital growth over time, this can lead to a powerful combination.

Tenants pay the mortgage

If you need a mortgage, you can effectively get the tenants to pay the lending costs and interest. Just remember who is liable for this even if the tenant does not pay! Lenders will require that you have more income than the cost of the mortgage, so you should have a buffer if mortgage rates rise.

Understanding

You will benefit from historically low mortgage rates, which can make property purchase seem attractive. Mortgage rates are at their lowest ever cost for landlords at the moment. Just remember that rates are likely to rise in the near future.

 We all understand property. Also, because we can see our asset, it feels more real to us.More calculator

Issues of property investment

Costs

Make sure you understand all the costs of property purchase. Consider the following:

• Purchase costs – legal fees, stamp duty
• Development costs – getting the property ready for rental
• Rental costs – agent fees, maintenance costs
• Mortgage costs

Tax

RisksTax can be a large cost to landlords. You will pay income tax on your rent (between 0-45%), and capital gains tax on any future gains (at either 18% or 28% when you sell the property). Make sure you understand how tax can reduce the rental yield and capital growth of your investments. Just remember that if you fund a property purchase from a pension the tax is likely to be greater. In many cases this high tax may be the reason that puts you off investing in property.

There are always risks associated with any investment. Property values do not always rise, and any investment can drop in value. You should consider the following:
• Will you always get tenants? Prepare for periods when the property is not rented
• What will happen if the property drops in value, or the rental value falls?
• Will borrowing to fund the purchase price add to the risks? What happens if interest rates rise, leading to an increase in the cost of borrowing? How do falling or rising property values add to your investment risk? Remember that borrowing money amplifies any growth in your property value, but also increases losses.

Accessibility

One downside of property is that it is not very accessible if you need cash. If you need to dip into your capital you will usually need to sell the properly. This means paying extra costs and tax, and will probably take some months to achieve. During a falling market it can be very difficult to sell property.

Profits

Are the costs too high with property purchase compared to the profits you want? Make sure you do the figures properly, so you are sure that hidden extra costs do not swallow all of your profits.

Should you use your pension to fund a property purchase?

Using your pension is a convenient way to access capital. From that perspective you could use the lump sum to fund a property purchase. Just make sure you are prepared to give up the important tax benefits of your pension, and you do not want to make significant contributions in the future. You should also be careful to do your figures so that the additional costs and taxes associated with property purchase do not eat into your profits.

 

This article was written for More Estate Agents by Dan Woodruff

About Dan Woodruff
Dan Woodruff is a Certified Financial Planner with Woodruff Financial Planning based in Colchester. For more articles on retirement and investment management see http://woodruff-fp.co.uk.


Woodruff Financial Planning is authorised and regulated by the Financial Conduct Authority. Seek professional financial advice before making decisions on your pensions and investments. Remember that any investment comes with risks and the value of your investments can fall as well as rise.

Apr 25, 2015

Making my home more energy efficient

Improving my home

There are a variety of ways to incorporate energy saving measures into your home. With our comprehensive tips and advice, you can learn about installing renewables technology to generate your own energy and effective methods to help you insulate all areas of your home, helping to lower your heating bills. In this section you can also learn more about using water more efficiently and how reducing consumption can help you make significant savings on your energy bills. And our heating and hot water section offers advice on using a cost effective heating system – a great way to save and reduce your carbon dioxide emissions. Read on to find out more.

Find out how you can install renewables technology (also called micro-generation and low-carbon technology) to generate your own energy, which can help save and reduce your carbon emissions. 
Learn about roof and loft, cavity and solid wall insulation, and how best to insulate your home and make savings. 
As fuel costs rise, using an efficient and cost effective heating system is vital. Find out more about different heating methods to help you choose the right one for maximum efficiency and energy saving. 
From kettles to home entertainment systems, read our advice on choosing appliances best on energy ratings – an important way to help you reduce consumption and lower your energy bills. 
Our tips on switching energy suppliers will help ensure you are getting the best deal from your current energy supplier and ultimately help you save on your bills. 
Saving water can reduce your energy use and bills, reduce the impact on your local environment and your carbon dioxide emissions. Find out how to get started and start saving today. 
There are a variety of energy efficient lighting products available but choosing between them can be confusing. Read our advice and find out how changing the bulbs you use can instantly help you make energy and financial savings. 
Smart meters represent the next generation of gas and electricity meters. They can help you keep track of the energy you use and help you make informed decisions to manage your costs. Read our page to find out more.
Apr 15, 2015

What is an EPC (Energy Performance Certificate

Energy Performance Certificates (EPCs) are needed whenever a property is:

  • built
  • sold
  • rented

You must order an EPC for potential buyers and tenants before you market your property to sell or rent.

In Scotland, you must display the EPCsomewhere in the property, eg in the meter cupboard or next to the boiler.

An EPC contains:

  • information about a property’s energy use and typical energy costs
  • recommendations about how to reduce energy use and save money

An EPC gives a property an energy efficiency rating from A (most efficient) to G (least efficient) and is valid for 10 years. 

 

Mar 14, 2015

Energy Performance Certificate (EPC) in Essex

Contact Essex EPC Solutions for an Energy Performance Certificate (EPC), Green Deal Assessment Report (GDAR), Floor Plan or Professional Property Photographs in Essex.

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Cheap Energy Performance Certificates for Estate Agents and Homeowners in and around Essex with Essex EPC Solutions.

Mar 12, 2015

Home Improvement Fund

GDHIF ANNOUNCES £70 MILLION IN ITS THIRD RELEASE OF FUNDING

Today DECC announced up to £70 million of new funding in the next release of the Green Deal Home Improvement Fund (GDHIF) creating a pipeline of work for the industry to carry out over the key Spring to Autumn period when the majority of energy efficiency installations are undertaken.

Up to £5,600 will be available to households in England and Wales to help with the cost of installing energy saving measures such as solid wall insulation, double glazing, boilers, cavity wall and floor insulation.

The GDHIF third release, offers a new incentive rate of up to £1250 for installing any two measures from an approved list of 11 energy saving measures, detailed below. The 25% increase in rate makes it even more appealing for thousands more householders throughout England and Wales to undertake multiple measure improvements and enjoy a warmer home for less.

With the GDHIF Third Release, domestic energy customers will be able to receive:

  • up to £3750 for installing solid wall insulation;
  • and/or up to £1250 for installing two measures from an approved list*
  • up to £100 refunded for their Green Deal Assessment;
  • up to £500 more if applying within 12 months of buying a new home.

The GDHIF Third Release will be open to new applications from midday on Monday 16 March 2015.

GDHIF SECOND RELEASE IS STILL OPEN FOR 2 MEASURES OFFER

GDHIF Second Release applications for solid wall insulation closed on the 12th December 2014, however approximately £5.5 million is still available up until GDHIF Third Release opens on 16th March 2015.

Once GDHIF third release funding is exhausted we will resume allocation of the balance of funding for two measures from the second release, allowing owners and occupiers to apply for;

  • up to £1,250 (at the new rate) for installing two measures from an approved list*;
  • up to £100 refunded for their Green Deal Assessment if that recommends the measures applied for;
  • up to £500 more if applying within 12 months of buying a new home.

GDHIF funds are limited and DECC may vary the terms of the scheme (including the incentive rates) or suspend or close the scheme, with immediate effect, without notice and at any time.We’ll monitor take up of the scheme and will make changes if required.

More people will enjoy a warmer home for less through a new release of the Green Deal Home Improvement Fund (GDHIF) worth up to £70 million.

GDHIF – ANY TWO MEASURE OFFER 

GDHIF any Two Measure offer includes eleven energy saving improvements;

  1. a condensing gas boiler on mains gas
  2. double or triple glazing as a replacement for single glazing
  3. secondary glazing
  4. energy efficient replacement external doors
  5. cavity wall insulation
  6. floor insulation
  7. flat-roof insulation
  8. insulation for a room in the roof
  9. a replacement warm air unit
  10. fan-assisted storage heaters
  11. a waste water heat recovery system

Contact Essex EPC Solutions for more information and your Green Deal Report www.essexepcsolutions.co.uk

Feb 11, 2015

Green Deal

Green Deal and ECO
The Green Deal is a government backed initiative that can help you understand the energy-saving improvements you can make to your home. It can also help you find companies to carry out the work, and give you access to a number of options for paying for the improvements, including Green Deal finance.

The first step in getting improvements through the Green Deal will usually be to get a Green Deal Assessment.

Green Deal Assessment

You will need an authorised Green Deal Assessor company to carry out your assessment. They will send an advisor to visit your home and produce a Green Deal Advice Report listing the improvements that are possible, and which of these are likely to be cost-effective. You will usually have to pay for this.

Green Deal Home Improvement Fund

The Green Deal Home Improvement Fund can give you cashback if you install certain eligible insulation and heating improvements in your home such as wall insulation and replacement gas boilers. Find out about support currently available and how to apply. Make sure you apply before carrying out any work or you won’t be able to claim.

Green Deal finance

A private company, known as a Green Deal Provider, provides a loan to pay for some or all of the cost of installing energy improvements in your home, as well as arranging the installation itself. You then repay the loan, which will include interest, through a charge added to your electricity bill. The amount you can borrow is limited by what a typical energy user might save on their energy bills from installing the improvements – so a Green Deal loan may not cover the full cost of the installation.

Jun 3, 2014

£7600 to make your home more energy efficient

Households carrying out energy efficiency improvements on their home can now get more money back to offset the cost of having the work done.

From June, people in England and Wales will be able to get up to £7600 back through a new Green Deal Home Improvement Fund so they can take control of their bills and have warmer, greener homes.

The scheme helps people to install energy efficiency measures such as solid wall insulation and new heating systems by providing them with money back on the contributions they make towards improvements.

It opens up the market for smaller businesses in the energy efficiency sector, competing in new and innovative ways and providing further opportunities for jobs and growth.

Green Deal Installers and Providers should register with the scheme now.

Energy and Climate Change Secretary Ed Davey said:

“The best way for households to take control of their energy bills is to use less energy.

“Faulty boilers, draughty windows and insufficient insulation all cause properties to leak hundreds of pounds every year. But advice and support through the Green Deal can help put a stop to this.

“By installing energy saving improvements, families across the country can enjoy the benefits of warmer, more energy efficient homes and lower bills.”

The average annual bill saving from installing major measures such as solid wall insulation in a three-bed semi-detached house is £270, while savings from other measures such as upgrading a boiler can knock around £100 off a customer’s bill.

Under the new incentive scheme, which is available from June, domestic energy customers can get:

up to £1000 for installing two measures from an approved list; and/or
up to £6000 for installing solid wall insulation; and
up to £100 refunded for their Green Deal Assessment.
The scheme also entitles those who have bought a property in the 12 months prior to application to qualify for up to an additional £500 if they carry out energy efficiency improvements.

In December the government announced a £540 million three year energy efficiency package to make Britain’s homes and public buildings more energy efficient.

Climate Change Minister Greg Barker said:

“The Green Deal Home Improvement Fund is another way the Government is making it simpler and cheaper for people to stay warm and improve their homes.

“I want households across the country to benefit from more energy efficient homes and reduced bills through the Green Deal, and that is what the new home incentive fund will do.”

The Green Deal Home Improvement Fund also applies to private or social landlords, who can benefit if they undertake to improve the property and are paying the costs themselves.

May 2, 2014

New scheme offers cash incentive to households using renewable heating systems in their homes

The domestic Renewable Heat Incentive (RHI) launched, offering homeowners payments to offset the cost of installing low carbon systems

Minister for Energy Greg Barker with a Grants biomass boiler and Claire Perry MP. Grants is in Claire Perry’s constituency.

Minister for Energy Greg Barker with a Grants biomass boiler and Claire Perry MP. Grants is in Claire Perry’s constituency

A new and innovative Government scheme launched today will pay people for the green heat they generate for their homes.

The domestic Renewable Heat Incentive (RHI) is the world’s first long-term financial support programme for renewable heat, offering homeowners payments to offset the cost of installing low carbon systems in their properties.

The scheme is open to everyone – home owners, social and private landlords, and people who build their own homes. It is available to households both on and off the gas grid.

Minister for Energy Greg Barker said:

“This is the first scheme of its kind in the world – showing yet again that the UK is leading the way in the clean energy sector.

“Not only will people have warmer homes and cheaper fuel bills, they will reduce their carbon emissions, and will also get cash payments for installing these new technologies.

“It opens up a market for the supply chain, engineers and installers – generating growth and supporting jobs as part of our long-term economic plan.”

The technologies currently covered by the scheme are:
•Biomass heating systems, which burn fuel such as wood pellets, chips or logs to provide central heating and hot water in a home. Biomass-only boilers are designed to provide heating using a ‘wet system’ (eg through radiators) and provide hot water. Pellet stoves with integrated boilers are designed to burn only wood pellets and can heat the room they are in directly, as well as provide heat to the rest of the home using a ‘wet system’ (eg through radiators) and provide hot water.

•Ground or water source heat pumps, which extract heat from the ground or water. This heat can then be used to provide heating and/or hot water in a home.

•Air to water heat pumps, which absorb heat from the outside air. This heat can then be used to provide heating and/or hot water in a home.

•Solar thermal panels, which collect heat from the sun and use it to heat up water which is stored in a hot water cylinder. The two types of panels that are eligible are evacuated tube panels and liquid-filled flat plate panels.

Technology

Tariff

Air-source heat pumps 7.3p/kWh
Ground and water-source heat pumps 18.8p/kWh
Biomass-only boilers and biomass pellet stoves with integrated boilers 12.2p/kWh
Solar thermal panels (flat plate and evacuated tube for hot water only) 19.2 p/kWh

Only one space heating system is allowed per property but homeowners can apply for solar thermal for hot water and a space heating system.

The guaranteed payments are made quarterly over seven years for households in England, Wales and Scotland. (Northern Ireland has its own RHI scheme). The scheme is designed to bridge the gap between the cost of fossil fuel heat sources and renewable heat alternatives.

The Renewable Energy Association (REA) has already backed the scheme, and says its introduction could make 2014 a breakthrough year for renewable heating.

Mike Landy, head of on-site renewables at the REA, said:

“Domestic RHI is set to be one of the highlights of the Government’s green agenda in 2014. It will mean that renewable home heating is not just environmentally sensible, but also financially attractive.”

Apr 5, 2014

The Green Deal explained Getting a Green Deal assessment

A Green Deal assessor can be independent or affiliated with a Green Deal provider
How will my property be assessed?
The Green Deal assessor will produce a Green Deal advice report made up of two documents, an Energy Performance Certificate (known as an EPC, this rates your home’s energy efficiency on an A to G rating scale) and an Occupancy Assessment, which assesses how you use energy in your home.
EPCs are already in use, as they have to be produced when properties are sold or rented out. An EPC is a basic assessment of the fabric of your property; it assumes how many people live in the property and how they use their heating, so it does not take account of your actual usage or energy bills. The Occupancy Assessment is personalised to you and does assess your own energy use.
It is the EPC that is used to decide the amount of Green Deal finance you can borrow. This means there is a risk – particularly for low energy users – that the EPC could overstate how much energy you could save, meaning that your repayments might be higher than your savings. In this case, the assessor is required to get a written acknowledgement from you, showing that you are aware of this risk.