If you’re considering investing your pension into property, it’s important to know what’s what.
Which Pensions can be used for Property Purchase?
Self-administered pension schemes can be used for the purchase of property, of which there are two types:
SIPPs (self-administered pension schemes)- used by individuals
SSASs (small self-administered schemes)- used by companies
If the pension fund does not have enough money to buy the property outright, it can borrow money to make the purchase of up to 50% of the value of the property.
Commercial NOT Residential
It can be very tax efficient to buy commercial property through a pension fund, for reasons we will discuss in a moment. The types of buildings that qualify as commercial property are things like warehouses, offices, retail units, etc.
It’s important to note here that buy-to-let properties are classed as residential, not commercial, even if you aren’t using them for your own residential use.
You can buy residential property with your pension fund, but you will face a large tax bill from HMRC, which in most cases, makes it financially unviable. It cannot be brought into a pension scheme in a tax-efficient way.
Why is it Tax Efficient?
When you use your pension fund to purchase commercial property, the property in question is now owned by your pension.
Let’s imagine a scenario in which you are a business owner who uses your pension scheme to purchase the premises of your business to take advantage of tax breaks. Your business then takes up a commercial lease with your pension, paying rental payments based on standard market rates. When your business makes these rental payments, the money goes straight into your pension rather than a landlord. This rental income received from the pension fund in regard to the property is exempt from income tax.
If you then sell this property in the future, any gains made on the disposal of the property by the pension scheme are free from capital gains tax.
As well as these significant tax benefits, investing your pension in commercial property means a regular income into your pension pot. It also means you own a physical asset which won’t disappear if the market crashes and shouldn’t fluctuate in value too much.
However, there is no guarantee that the property you invest in will appreciate in value. If it does depreciate and the property makes a loss at the point of sale, your pension is also making a loss. Additionally, you should bear in mind that even if it does make a profit, you cannot access pension funds until age 55, so this money will remain locked away in your pension until then.
If you are considering investing your pension into property, you should contact a regulated and qualified financial adviser before making any big decisions.
by Red Star Wealth
Jeremy Hunt’s decision to scrap the pensions lifetime allowance, announced on Wednesday 15th March during his Spring Budget, has been met with controversy.
What was the Lifetime Allowance?
The lifetime allowance previously capped the amount that individuals could save into their private pension before incurring a tax charge. Previous to the Spring Budget, the lifetime allowance was set at £1,073,100, with expectations that Hunt would increase this figure to £1.8 million. However, in a surprise move he instead decided to abolish the lifetime allowance completely.
For most lower and middle earners, the scrapping of the lifetime allowance will not affect them. This decision will mainly affect higher earners as these tend to be the people who can afford to build bigger pension pots.
“It is a pension tax reform that will stop over 80% of NHS doctors from receiving a tax charge and incentivise our most experienced and productive workers to stay in work for longer”
“I have listened to the concerns of many senior NHS clinicians who say unpredictable pension tax charges are making them leave the NHS just when they are needed most”
The decision to scrap the lifetime allowance is aimed to keep people close to retirement in the workforce for longer, as well as encouraging those who have already retired to return to work. This is because there is more incentive for employees to stay in work to continue building their pension as they won’t face tax penalties for doing so. The idea is that this will help stimulate economic activity and produce economic growth.
Criticism
However, this decision has been met with controversy, with some arguing that whilst these changes would indeed combat the issue of 55% tax penalties faced by doctors, they would also give a big boost to many wealthy people.
David Brooks, head of policy at Broadstone, has argued that scrapping the lifetime allowance and increasing the annual pensions contributions has acted as a “huge tax giveaway to the wealthiest people in the country”
The following images is taken from the director of the Social Market Foundation, James Kirkup’s, twitter:
Perhaps the government should be focussing on getting more people to start building pensions, rather than helping those with large pensions make them even bigger.
Shadow Chancellor and Labour MP, Rachel Reeves stated:
“The only surprise in the budget was a huge handout to the richest one percent of pension savers […] Labour believes that the tax burden should be shared fairly. That is why I’ve announced today that Labour will reverse the changes to tax-free pension allowances. It is the wrong priority at the wrong time”
Given that Labour is favoured to win the next general election, it is a real possibility that Hunt’s scheme may not be in place for very long…
To read more about other changes announced in the Spring Budget, check out our previous blog.
by Red Star Wealth
There is a new government bill which should help remove employee barriers to flexible working. Read on to find out more about this Flexible Working Bill…
What is Flexible Working?
Flexible working arrangements include, but are not limited to:
Changing from full time to part time hours
Working compressed hours, where you work the same hours you are currently working, but in a smaller number of days
Changing the hours you work, e.g, changing from night shifts to day shifts or vice versa
Shift working
Flexitime… this is where you normally have core hours where you must be at work with the remainder of your working day being under “flexitime”. In this flexi time, you can choose when you want to work to meet your remaining quota of working hours
Working from home, for either all of your working days or just some of them
The Current Legislation
Employees must wait 26 weeks after starting a new job to make a flexible working request
Employees can make a maximum of one request for flexible working every 12 months
Employers have 3 months to respond to any requests
There is no right to appeal if an employee sees their request denied
There is currently no timescale for this legislation, but it has had its second reading in the House of Commons on 28th October.
The legislation would:
Remove the current requirement for employees to explain in flexible working applications what effect they think it will have on the employer
Allow employees to make a request twice every 12 months (double what they can now)
Require employers to consult with the employee in question before refusing the application
Reduce the deadline for employer responses from 3 months to 2 months
The Positives
The bill would help remove barriers for a lot of employees who are unable to work traditional working patterns.
“Parents of young children, single parents or individuals with disabilities and health conditions so often need flexible working, but access to these arrangements is not equal for all. Improving access would help older people stay in work longer and help parents and carers return to and stay in work.” –Qureshi
An additional effect this bill could have is an increase in people’s pensions as more people would be able to make contributions.
However…
Some have taken a more cynical view of the Flexible Working Bill. Molly Johnson-Jones, founder and CEO of Flexa Careers stated that the bill would be problematic in practice. She said it
“will leave workers with caring responsibilities or disabilities- who start new jobs in good faith that their flexible working needs will be accommodated- in hugely precarious positions if their requests end up being turned down.”
Like with many things in life, time will tell how effective this legislation will be at meeting its aims. At the very least, it seems to be a step in the right direction.
by Red Star Wealth
Scammers have various ways of getting you to depart with your pension, and once you make that transfer, your retirement money is gone. Scammers can be very hard to spot; they know exactly what they’re doing. Let’s explore how you can protect your pension and reduce your risk of falling victim to these scams…
Warning Signs
Cold calling- since January 2019, there has been a ban on cold calling about pensions. Unless you’ve asked a company to contact you about your pension, they are not allowed to. So, if someone tries to get into contact with you out of nowhere regarding your pension, steer clear!
Claiming to know ways of avoiding tax or saving on tax- yes, tax can be frustrating, but it is there for a reason. We are sorry to say that there’s no loopholes here!
Promising limited time offers or one-off investments- if it sounds too good to be true, it probably is
Offering a loan or cash back from your pension- don’t be tempted by the promise of cold hard cash. It’s false
Rushing you to make decisions- take a step back and question why you are being rushed. If they are legitimate, why would you need to make a decision so quickly about money you’ve been putting away for decades?
Getting you to download software or apps- scammers may do this to gain remote access to your devices in order to access things like your bank details
Free pension reviews- as one of the most popular pension scams, this sounds harmless but it won’t end up being just a review at all
Claiming to help you access your pension before age 55- you cannot do this without ending up with a very high tax bill from HMRC
Offering complicated investment schemes- a good rule to follow is that if you don’t understand it, don’t do it
Putting your money into a long-term investment- scammers may use this tactic as you wouldn’t necessarily notice for years that there is something not right
Suggesting you funnel all of your pension pot into a singular investment- the investments most scammers persuade you to buy into are incredibly high-risk, meaning you risk losing all of your retirement savings. Most regulated financial advisers will suggest diversifying your investments to reduce risk
Protecting your Pension
Many pension scammers have convincing websites and online presences to make them seem like they’re legitimate. This is why it’s so important to take extra precautions with your pension.
Check the FCA register to check if they’re legitimate
Check the FCA Warning List to see the risks associated with a potential investment
Talk to a regulated financial adviser before transferring your pension
Check it isn’t a clone firm. Some scammers pose as legitimate firms by using their name but different contact details. Make sure you use the contact details which are on the FCA website to ensure you don’t fall into this trap
If you think you’ve been scammed, contact your pension provider to see if they can stop the transfer if it hasn’t taken place yet
Your pension pot is made up of your hard-earned money, so why risk losing it all? Take these precautions and watch out for scammers! If you have been a victim of a pension scam, contact Action Fraud to report it.
Click here to learn more from our sister company about protecting yourself from financial scams.
by Red Star Wealth
If you’re feeling a bit dizzy from all the U-turns in economic policy under Truss’ leadership recently, we can’t blame you! It’s difficult to keep up with it all at the moment, so we are here to help. Let’s have a look at what’s been going on…
Goodbye Kwarteng, Hello Hunt
Jeremy Hunt has recently replaced Kwasi Kwarteng as Chancellor, bringing with him even more economic changes.
Liz Truss has stated that Government spending will low grow less rapidly than she planned, meaning lots of U-turns on her previous plans.
The Medium-Term Fiscal Plan
On 26th September 2022, Kwarteng revealed that his Medium-Term Fiscal Plan would be presented on 23rd November.
This announcement is still in place, except now it’s happening earlier than planned and being delivered by a different man (Hunt). The Treasury announced on 10th October that the Chancellor would bring forward the announcement of this plan to the 31st October as opposed to 23rd November.
Triple Lock Confusion
The triple lock means that the state pension rises each year in line with either inflation, average earnings, or 2.5%, depending on which figure is the highest.
On 17th October, Hunt indicated that the Government was considering shelving the triple lock on pensions. However, two days later during Prime Minister’s Questions, Truss confirmed that the triple lock was there to stay.
“Firstly, we will reverse almost all the tax measures announced in the Growth Plan three weeks ago that have not started Parliamentary legislation” -Jeremy Hunt
Income Tax U-Turns
Hunt has announced that he’s reversing the proposed 1% cut in the basic rate of income tax announced in Kwarteng’s mini-budget. Instead, the basic rate will remain at 20%.
He’s also announced that the Government will not proceed with abolishing the 45% additional rate of income tax, as was previously announced in the mini-budget.
Alcohol Duty Freeze U-Turn
Hunt has also abandoned Kwarteng’s plans of freezing alcohol duty rates for a year, commencing 1st February 2023. This freeze is no longer going ahead, which is estimated to save the Treasury £600 million a year.
Corporation Tax Double U-Turn
Kwarteng announced in his mini-budget that the previously planned rise in corporation tax due to come into force in April 2023 would no longer go ahead.
Since his replacement, Truss has stated that the rise will go ahead next year after all, rising from 19% to 25%.
Energy Bill Price Cap
During Prime Minister’s questions on 19th October, Truss seemed to lean heavily on her energy bill price cap as a supportive measure for those most vulnerable. However, this energy bill support to ensure that the typical household’s average bill doesn’t exceed £2,500 is only to last until April 2023. The support is only actually in place for half a year.
Stamp Duty Land Tax
One remaining element of Kwarteng’s mini-budget is the changes to Stamp Duty Land Tax. The nil-rate tax threshold will stay at the increased £250,000, and £425,000 for First-Time Buyers.
So, that’s all of the recent changes summed up… for now! Things may be due to change again with Truss’ resignation, so stay tuned.
by Red Star Wealth
Some of the figures from Now: Pensions’ Gender Pensions Gap Report 2022 show a shocking gender disparity in retirement incomes. There is currently a £136,800 gap between men and women’s pensions, giving a gender pension gap of an enormous 33.5%. This essentially means that women would have to work an extra 18 years in full-time employment to save the same pension level as a working man. Join us while we look through the reasons why this gap exists and how you can help build up your pension.
Childcare Responsibilities
Many women take career breaks for caring responsibilities, during which time they perform no paid work. Women also make up the biggest proportion of part time workers in the UK, partly because they take on more childcare responsibilities. The 2022 Gender Pensions Gap Report estimated that 42% of women in the UK have caring responsibilities, highlighting just how big an impact this can have on women’s working lives.
Given that raising children is unpaid work, women are often unable to make as high pension contributions. Career breaks also mean less opportunities for career progression through promotions, so women often miss out on pay rises as a result, so have lower incomes to make pension contributions from.
The Glass Ceiling
Amongst FTSE 100 companies, only 8% of CEOs are female, highlighting the lack of women in leadership roles.
Part of this is because there are still underlying notions of women being less capable then men. The Reykjavik Index for Leadership measures the extent to which societies view men and women as equal in terms of their suitability for leadership roles.
A score of 100 represents complete agreement that men and women are equally suited to leadership. The 2021/2022 index for the G20+ saw the UK with a score of 82. Whilst this is above the G20 average of 68, it still means that there is gender inequality. Why is it not 100? Why are women still not seen as equally capable of men?
Auto-Enrolment Pensions
Auto-enrolment was introduced in 2012, making employers legally obliged to offer workplace pensions for employers who meet the eligibility criteria. Part of this criteria is earning £10,000 or above from a single job role (not as a combined income from multiple jobs).
This is a great scheme… but only for those with traditional working patterns. If you are self-employed, take a career break or work multiple part time jobs, you may feel to meet the eligibility criteria. In fact, 23% of employed women fail to meet the criteria, as they are more likely to fall into all of these categories.
This means that many women aren’t automatically paying into a pension, and instead have to organise it themselves if they wish to join a pension scheme. And if they don’t, their pension pot simply won’t grow.
What could the Government do?
Reduce or remove the £10,000 auto-enrolment trigger so that more working women start automatically contributing to a pension fund
Make pension sharing more common in divorce
Make childcare more affordable so that more women are able to return to work after maternity leave
What can you do?
Try to pay in the maximum amount into your pension each month that you can reasonably afford. Just because the current auto-enrolment minimum is 5% from you and 3% from your employer, does not mean you can’t contribute more than this. If you get a pay rise or your expenditures go down, it’s always good to consider putting a bit more away for your retirement.
The earlier the better. The longer you make pension contributions for, the more you save. Pensions also work on a system of compound interest… the more you have, the faster it grows.
Auto-enrolment isn’t the only way to put money away for retirement. If you don’t fit the eligibility criteria it can be worth having a look into setting up a personal pension to see if it’s for you.
Try to keep up contributions even when you have a family, even if you are putting away less than before.
Keep an eye on your pensions pot. Check it like you would your bank balance to keep track of where you’re at so it’s easier to see if you need to start increasing contributions.
If you take a career break and stop making contributions, try to contribute a higher percentage of your income when you return to bridge the gap.
Try to share caring responsibilities more equally amongst you and your partner, so that you can both focus on paid work to the same extent.
