Finance in the News

Who will benefit from Stamp Duty cut?
The Chancellor’s decision to scrap Stamp Duty on property purchases worth up to £300,000 for first-time buyers gives them a theoretical gain of up to £5,000 (the duty payable on a normal £300,000 purchase). But the average FTB purchase is £165,000, and on this the cut in Stamp Duty delivers just an £800 saving. Moreover, the Office for Budget Responsibility, using data from the ‘stamp duty holiday’ after the financial crisis, says most of the benefit of the cut will be captured by property owners, and it expects house prices to be slightly higher as a result.

Do the sums on cashback mortgages
Cashback mortgages have enjoyed a surge in popularity, says the Independent. It reckons there are 1,200 different offers on the market, and the average cashback today is about 10 per cent higher than a year ago at £409, but that buyers need to do their sums to work out when they really deliver a better deal. Often, it says, a bigger cashback amount can make a 2-year deal at a higher interest rate better value than a rival one at a lower rate. But for those seeking a big mortgage, the interest rate cost usually outweighs the cashback.

The savvier Xmas gift
Consider investment company plans as an alternative gift for children, says the Sunday Times. The average investment company would have converted a gift of £100 made 18 years ago to nearly £500 today, while £100 each year for the past 18 years would now be worth £6,200 compared with £2,100 if it had been put in a deposit account. Many of the 16 companies offering gift plans have monthly minimums of £25 and lump sums start from as little as £50. If you set up the plan as a ‘designated account’ then you can decide when the child gets the money – it can be later than age 18, which is when they have to be handed the cash if you use a Junior ISA for their savings.

Londoners spend half their pay on rent
While the average tenant in England and Wales paid 27 per cent of their gross salary as rent in 2016, Londoners had to give up an eye-watering 49 per cent of their gross pay, reports the BBC. In Wales, the proportion could be as low as 18 per cent and 23 per cent in the North of England. Lord Bird, founder of The Big Issue, is leading a campaign to have tenants’ rent payments included in the data used to give credit scores to mortgage applicants.

Small step forward for cohabitation
There has been a small step forward for the rights of cohabiting couples, says the Sunday Times. The Court of Appeal ruled that unmarried people may be entitled to statutory bereavement damages, which are worth up to £12,980 – though it will require a change in the law to bring this into effect. Cohabitees, whose numbers have more than doubled from 1.5m in 1996 to 3.3m now, are much worse off than married couples, especially in relation to inheritance tax. IHT is normally levied at 40 per cent on assets worth more than £325,000, including property. The amount below this threshold is known as the nil-rate band. Any unused IHT nil-rate band allowance can be transferred to a surviving spouse or civil partner, allowing them to pass on £650,000 free of tax when they die. Cohabiting couples cannot do this. In addition, the new residence nil-rate band applies only to married couples and civil partners. This adds a further £100,000 to the amount someone can pass on free of IHT to a child, grandchild or other direct descendant if their estate includes their main home.

HMRC gets heavier with penalties
HMRC has got a lot of publicity for its proposal to replace penalties for late filing of tax returns with a ‘points’ system like driving licenses, says the Times. But in practice it has been imposing more penalties for ‘deliberate errors’ on tax returns – the number of these penalties rose by 19 per cent in 2016. The penalty can be between 20 per cent ad 70 per cent of the tax due. Moreover, once you’ve had a penalty imposed, HMRC can monitor your affairs for several years, and you can be ‘named and shamed’ on the HMRC website.

Another tax hit for BTL investors
The Budget concealed yet another tax hit for Buy-To-Let investors, says the Times. The Chancellor eliminated the ability of companies to uprate the cost prices of their investments in line with inflation with effect from April 2018. This brings the treatment of company gains in line with personal gains, and will bring an estimated £2 billion in extra tax over the next five years. It’s a blow for BTL investors who hold their properties inside a company. Up to 200,000 landlords have set up companies to hold BTL properties since the rules were changed and reduced their eligibility for tax relief on mortgage interest, while a further 500,000 landlords are estimated to be considering incorporation.

The real problem with university costs
Writing in the Financial Times, moneysavingexpert Martin Lewis says: “With higher inflation, bizarrely the biggest practical problem with student loans is that the debt isn’t big enough. It’s time to change the debate. The cost of living crisis is the problem, and even cutting tuition fees to nothing wouldn’t solve it.” His point is that the tuition fees are covered by loans, but students’ living costs aren’t – what they get depends on their parents’ income – and the way parents are assessed for contributions mean that those with more than one child at university are penalised. Yet this isn’t made clear either to students or their parents.