Laura HowardQ: Our son was paying £575 a month for a rented house and has now returned home to save for a deposit. If we were to give him an interest-free loan of £80,000 what, if any, would be the tax implications? We have a modest house, no mortgage and retire in two years. Can other members of the family provide a loan as well? And should the house be solely in his name or should our names be included?
A: You – and any other family member – will need to prove to HMRC that the £80,000 is a loan, not a gift, if you don’t want it to count towards your estate for Inheritance Tax purposes should you die within seven years of making it. This means drawing up a legal agreement, such as a promissory note, with a solicitor.
This states the terms, interest and timeframe of the loan. It could also state that you want the money back only when the house is sold. If you put your names on the property deeds and become joint owners, you could become liable for Capital Gains Tax. Your son would also not be deemed a first-time buyer and therefore wouldn’t qualify for the current Stamp Duty exemption on homes costing less than £250,000.
Q: Is it better to wait until interest rates go up before I buy an annuity?
A: Theoretically, if interest rates rise, gilt yields should rise – and so annuity rates should rise too. But typically, things are not that simple. Other factors – such as longevity assumptions and even competition among product providers – can actually have a bigger impact on annuity rates than base rate. This makes it something of a gamble to hold off buying an annuity if now is the appropriate time for you. But do shop around before making a decision.
Q: Which credit card converts currency purchases at the best rate? I dislike having to pay an extra 5% or more to bureaux de change or credit card companies when I buy something abroad.
A: Actually, a small handful of credit cards do not charge currency conversion fees (also known as foreign exchange, foreign usage or foreign loading fees) at all, wherever you spend in the world. These include the Saga Platinum card, the Clarity card from Halifax, Santander’s Zero card and the Post Office credit card. Don’t forget that interest rates can be equally important if you end up with a balance.
Q: I have an interest-only mortgage of £100,000 and a pension income of £33,000 a year, which is linked to the cost of living. In the short term I am, of course, happy with the rate of 3.9% but we all know what is going to happen. I’m just past state pension age, not yet creaking and my property is worth £375,000. Will anybody accept an application from me for a fixed rate or a tracker?
A: Most banks and building societies will lend past state retirement age, though many insist that the mortgage is repaid by the time you hit 75. But you must still prove that your income – which can be from a private pension – is adequate to support the loan. With your substantial pension income and relatively small loan to value, the sums should stack up.
However, if you move lenders, you will probably have to show that you have a repayment vehicle running alongside your interest-only mortgage with which to clear the capital in the agreed timeframe. Finding out what your current mortgage lender can offer is a good place to start.
If you do one thing this month…
Review your mortgage
With the cost of living on the up, interest rates rises are expected sooner rather than later. If you have a variable mortgage that is already stretching your budget, see an independent mortgage broker now about your options.
The way we are
According to new research, 70% of adults aged between 22 and 64 in the UK have no idea how much they are likely to retire on, while 25% of those aged between 55 and 64 don’t know how much the state pension is worth.
One-fifth of motorists automatically renew their car insurance with their existing provider, paying an average £270 more each year than if they had shopped around for the cheapest deal.
Written by Laura Howard, this article was first published in the May 2011 issue of Saga Magazine. Laura's opinions are her own and for general information only. Always seek independent, professional, financial advice.