The economy and the autumn statement

chucknorris

michaels wrote: »

Stuff for us to talk about in future?



http://www.bbc.co.uk/news/business-34927158

Very interesting about the new ISA type pension (hope that it isn't restricted to relevant earnings, but it probably will be) and the second hand annuities, if they become competitive buying one of these might interest me. Although thinking about it, wouldn't they be linked to someone else's life, that would be too weird I think.

CLAPTON

cells wrote: »

if you have a £100k gain from the sale of a property you pay £28k CGT which leaves you with £72k. You can gift that £72k to say your kids and if you die in ten years time that £72k is there not yours for IHT

Or if you keep the property you can pay 40% on death for the £100k equity of the house and the kids get £60k from the estate.

if you sell the BTL and pay the £28k CGT and have £72k in cash in a savings account and then die you pay 40% on the £72k the kids get £43.2k


So a £100k gain could be passed on as £72k or £60k or £43.2k going to the kids (or whoever) depending on how/when the sale/disposal takes place. the interplay between CGT/IHT/Both

that is my understanding is that right?

yes (although I would just say that it is the profit and not the equity that is taxed)

you do have a 11,100 cgt allowance each year to offset against the profit
you can transfer half the house to your legal spouse and so get two lots of 11,100 per year on sale

there are changes being made to IHT which, in many circumstance will mean £1 million is exempt after both deaths

Aretnap

chucknorris wrote: »

Very interesting about the new ISA type pension (hope that it isn't restricted to relevant earnings, but it probably will be) and the second hand annuities, if they become competitive buying one of these might interest me. Although thinking about it, wouldn't they be linked to someone else's life, that would be too weird I think.

They would - so make sure you buy yours from someone who looks healthy!

It will allow people with existing annuities to sell them for a lump sum, with which they can go off and buy a Lamborghini, or whatever it is that pensioners are doing with their lump sums these days. Essentially it extends the pension freedoms to people who've already bought an annuity. I think the idea is that the buyers will be insurance companies rather than private individuals - buying an annuity linked to someone else's life would be a massive punt unless you're going to buy a lot of them and spread the risk.

cells

chucknorris wrote: »

Very interesting about the new ISA type pension (hope that it isn't restricted to relevant earnings, but it probably will be) and the second hand annuities, if they become competitive buying one of these might interest me. Although thinking about it, wouldn't they be linked to someone else's life, that would be too weird I think.

it wont work like that

my guess

someone with an annuity will be able to sell it back to the company who they bought it from and the price they are offered will be similar to the price that someone of their age and heath would be offered to buy a brand new annuity for themselves (of course there will be a spread to cover overhead and profit)

so if an annuity company is charging £100k for an income of £5000pa for a 65 year old. A 65 year old who has an annuity of £5000pa would be able to trade it in for £100k (or a bit less say £90k. The £10k difference being the spread)

overall I dont see the value in having an annuity. Putting the money into an ISA would see you get a similar return and likely more. buying one is betting that you will live longer than the average person but since there is a spread for overheads for expensive insurance companies and their expensive staff and expensive buildings its not a 50% win/lose its probably more like 30% win 70% lose.

but as you mentioned before in some cases like yours maybe its worth having to allow you to spend more of your capital upfront

cells

Since annuities work a bit like bonds and since rates have gone down some old folk might find themselves offered huge sums of money

With current rates of £5,800 per year for a £100,000 annuity for a 65 year old. If you are 65 and have a pension of £30,000 a year then the company would/should offer you about £500,000 to buy you out. That is a huge sum of money

If the pension ISAs come in then it appears to me the government is moving pensions towards DIY shares/property rather than paying £500k to an insurance company to hire a bunch of first class math graduates to put that into gov bonds yielding 1% so they can give you £29k a year back

chucknorris

cells wrote: »

Since annuities work a bit like bonds and since rates have gone down some old folk might find themselves offered huge sums of money

With current rates of £5,800 per year for a £100,000 annuity for a 65 year old. If you are 65 and have a pension of £30,000 a year then the company would/should offer you about £500,000 to buy you out. That is a huge sum of money

If the pension ISAs come in then it appears to me the government is moving pensions towards DIY shares/property rather than paying £500k to an insurance company to hire a bunch of first class math graduates to put that into gov bonds yielding 1% so they can give you £29k a year back

I haven't looked for a while, but last time I did, index linked annuities were paying about 3.1%, so that would value a £5,800 annuity at about £187k, although I'm sure they will introduce a spread, so that they can cream a few percent off. Anyone looked at annuities recently, are the competitive ones still paying about 3.1% (index linked)?

cells

chucknorris wrote: »

I haven't looked for a while, but last time I did, index linked annuities were paying about 3.1%, so that would value a £5,800 annuity at about £187k, although I'm sure they will introduce a spread, so that they can cream a few percent off. Anyone looked at annuities recently, are the competitive ones still paying about 3.1% (index linked)?

ft says for RPI linked annuity for a person 65 years old its

£3,325 for each £100,000 invested

for +3% a year it says

£4,966 for each £100,000 invested

So if you have a £33k a year pension that is RPI linked and you are 65 years old you can potentially trade it in for a million pounds paid upfront

I wonder how the tax would work. you have to pay tax on the £33k pa pension but if you trade it in for a million will the gov be looking to claw 40% of that million?

Thrugelmir

cells wrote: »

overall I dont see the value in having an annuity.

Depends on how long you live.

As for investment performance. Endowment mortgages failed to deliver their expected outcome. People may fall into the same trap now with regards to direct investment. Markets by nature are volatile. When in retirement, fluctuating capital values may not be so comfortable to live with.

jacko74

wymondham wrote: »

I know of several 'elderly' people living in homes too big for them. If they didn't have to pay stamp duty for instance that may encourage them to move to flat/sheltered accommodation so a family can buy their home?

This seems much more sensible than giving first timers help in buying their overpriced house?

Yes let's let them off paying stamp duty on the property they bought in 1977 for £30k that's now worth £330k

chucknorris

Thrugelmir wrote: »

cells wrote: »

overall I dont see the value in having an annuity.

Depends on how long you live.

As for investment performance. Endowment mortgages failed to deliver their expected outcome. People may fall into the same trap now with regards to direct investment. Markets by nature are volatile. When in retirement, fluctuating capital values may not be so comfortable to live with.

I might consider buying an annuity at some point, nothing too significant, merely to increase the fixed income part of my portfolio. It does go against the grain a bit, for me to invest in something like an annuity, but deep down I have a feeling that it would make sense for me to do it, I don't accept my wife's argument that I shouldn't do it because I might die early, I think it makes sense because I might live much longer, if I do die early, buying an annuity is not going to be a major disappointment of that event! The alternative might be to invest in some freehold ground rents.