Labour isn't Working - Thread 36

[Nuthatch26]

A chat thread for those who don't like this Labour government 💙

The problem with socialism is that you eventually run out of other people's money.

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DH has emailed our financial advisor who handles our pension which isn't drawn down yet. He wants a meeting as to the least painful way tax wise to move forward. He doesn't want to lose 40% of something he's paid into for decades.

Completely understandable.

An increasing number of people I know are meanwhile mentally discounting the perceived value of their main residence by 20%, in the face of a potential Burnham land tax etc.

Others are simply looking to swerve inheritance tax by leveraging their property i.e. by taking a mortgage in their later years.

Bananas, but this is what it has come to.

@Bullandbear "Others are simply looking to swerve inheritance tax by leveraging their property i.e. by taking a mortgage in their later years"

apologies if I'm being thick, but how does that help please?

Sorry @SapphireCasino

If you take out a mortgage, you naturally reduce the net vale of your estate, as the debt is offset against the property value, hence mitigating or wiping out any IHT liability.

An increasing number of people I know are considering it.

I don't understand. Won't they be worse off overall due to having to pay interest on the mortgage? What do they do with the mortgage money, just spend it all?

It’s later in life when the interest element is more than offset by the reduction in IHT.

As to the allocation of funds, consumption or distribution - including to offspring presumably.

Well that's out of the box thinking

I figured you'd say that, but the reason I find this confusing is that I had to take out a life insurance policy which automatically pays off my mortgage if something happens to me

In their case, they actually have the funds ready in the bank - so the amount of money they've got is the same? Does that make sense? And even if not, wouldn't HMRC just account for that and say you've got to pay it?

Not really, it's pretty standard IHT planning advice and very common when the circumstances are right.

I've seen it used many times, but usually the money raised is used to buy "business assets" i.e. shares in a business (that meet the criteria), for double benefit, i.e. the "asset" is exempt from IHT (or used to be before Reeves!!) and the debt reduces the estate.

Depends what they spend the money on. As I've said above, could use it to buy "exempt" assets that are outside their estate, or contributions towards shared holidays, Xmas/Birthday presents, grandchildren school fees, or more expensive groceries, or holidays. Lots of ways to spend that wouldn't fall into the 7 year rule.

In other countries it's actually pretty normal to have an interest only mortgage long term - including into retirement - rather than seeking to pay it off entirely as quickly as possible. The UK is a bit unusual in our attitude to property.

But I thought it was quite difficult to get a mortgage that continues after retirement age. How do the people you know achieve that @Bullandbear ?

Yes, if you ignore that it's your home, it's not a particularly great strategy to have £1m+ of your assets in a property - which in the current market is no longer growing in value (and in fact shrinking), and which automatically takes your estate into IHT.

Unfortunately, if you live in the SE - and assuming you can't take a mortgage past retirement age - you have little choice.

I guess you could rent instead... but the UK government taxes rental so heavily (by taxing landlords) that rental is just not a sensible long-term option in the UK.

And Labour are talking about forcing rent prices up yet more, by making rental income subject to NI.

That will increase the cost to many small landlords- and hence the rents they charge - by 8%

No, the idea is to reduce the assets within your estate - so, taking a mortgage and investing the funds would not be advisable.

It’s purpose is to reduce your IHT liability - so, gifting to your children within the seven year rule etc.

They are invariably higher net worth, with assets other than UK property, hence they have options that others do not.

That said, ‘ordinary people’ have used equity release, although this presumably has consequences as to subsequent state care home eligibility, I assume.

Then rents will go up by at least 10% I guess.

We know a couple both high earning Italians. They rent in Rome. Honestly it's slummy to my eyes but the rent is low, they have no children.

What they have done is years ago buy a fabulous home in Geneva. They'll holiday there until they retire then live there full time.

I understood that equity release was usually a pretty bad deal, although I haven't looked into it in detail.

My understanding was that even with private (lombard) banking, property collateral wasn't sufficient and it would normally be against an asset portfolio. Which is fine, but doesn't bring the IHT liability of your SE home down.

That’s not my experience, at least.

PB’s may well lend on a conservative valuation in this environment (I would), but the property alone would suffice - the lender has first charge, of course.

In summary, it’s completely understandable that some people would much rather their main residence is ultimately taken by a lender, than pay a penny more than is absolutely necessary to HMRC/this wretched government - I know I would.