If you ever wanted a straightforward explanation of the Sub Prime Crisis (not my words) then this is it, worth the full 8 minutes.
It is however a spoof, or is it?
Enjoy
Richard Smith
The Finance Zone
0845 226 9106
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As the financial services proposition in the UK changes it’s nice to see Branson lead the field in the push for Northern Rock.
Northern Rock is a basket case, it over lent to borrowers who should not have borrowed as much as they did, and then the “credit crunch” started to bite, and of course the lending book started to look questionable, and then the world and his wife along with their wallets went running. This only left the Bank of Last resort UK Treasury (read Taxpayer) to foot the bill. It should have been allowed to collapse, and the management team put in prison – Newgate – a debtors prison would suffice.
Personally I think that Branson and his team should be able to buy the ‘rock, I think the time has come to wake up the high street and start to transform a boring market place. However the battle for the return of UK taxpayers money should be the focus and not the potential profit for another group of faceless financiers.
Perhaps those lenders that competed in the Northern Rock market place are now starting to look a bit cheap (on current stock market valuations), perhaps one should by now whilst stocks last. One for the very brave I think.
Is the Crunch going to get worse – of course it is.
If you are not rebalancing your portfolio now, you should be.
If you are not switching your mortgage now you should be.
If you are not cutting back on the Christmas spend, you better had.
Richard Smith
0845 226 9106
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Many years ago most of us were happy with the Mortgage Rate offered by our chosen Lender, and we we grateful that the money to buy our first or second home was being made available.
Over the years the markets changed, became more dynamic and this caused the Mortgage Lenders to become a little more active, and provide some different solutions, the ability to Fix, Cap or have a Discount to your Mortgage Rate always seemed to be more attractive. Very few new borrowers used the SVR- Standard Variable Rate which left the Lenders free to be more dynamic.
Lenders have relied less on you and I investing money in accounts, to which the Lender applied some profit, and then lent the money to us at this new higher rate, and more on the Money Markets things began to change.
The so called Credit Crunch has made things a lot worse, with Money being supplied to many Lenders in lower quantities now we are now starting to see some further increases in SVR as Lenders become more concerned about raising finance for them to lend, and increases the rates makes their Lending Books look better.
The headline today is Standard Life Bank, and it is not the first, as many Lenders have been increasing the costs of borrowing on the STANDARD VARIABLE RATE as you will probably guess, a Higher Rate means an increase in profit for the lender, and higher costs for the Borrower.
Bottom line here is, yes things could well be getting worse and there could be more increases of this type to come.
I suggest you review your Mortgage ASAP, take some action/advice and move it if appropriate.
The link to the full story is here
Richard Smith
The Finance Zone
0845 226 9106
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I have been asked several times to explain the changes and found this article which should clarify the position.
Tax Article
The pre-budget report from Alistair Darling in early October was heralded as a budget for residential property investors.
Why?
Because one of the main headlines was that the capital gains tax rate from
What this means is that people who have been investing in property and have been concerned at paying capital gains at a whopping 40% have been relieved of this pain – if they sell on or after
Actually, to be more to the point, the 18% flat rate would be payable if contracts are exchanged on or after
Giving with one hand and taking with the other
Although the reduction to 18% represents a capital gains tax saving of over 50%, it is important to understand that the Chancellor has also proposed removing two reliefs that would benefit longer term investors.
These are:
Indexation relief: a relief that is available for properties that were purchased before
Non-business taper relief: a relief that became effective on
The amount of relief available is dependant upon the period of property ownership. Taper relief starts once you have owned the property for a minimum of three years and increases to a maximum of 40% of the gain after 10 years.
So who are the real winners?
Well, it is certainly a real tax saving proposal for people who have started investing in residential property over the past few years, which probably includes the majority of buy-to-let investors.
Let’s look at an example of the traditional buy-to-let investor.
Case Study
John buys a residential property in March 2002. He is a 40% tax payer. The property purchase price is £120,000. In September 2007 the property is valued at £180,000.
This means he has made a £60,000 capital gain.
But what is his tax liability if he sells now at this price?
Capital gains tax liability if selling the property in the current tax year
If he sells now, he won’t be eligible for indexation relief, as the property was not purchased before
However, he will get a non-business taper relief benefit. This is because he has held the property for five whole years and this will bring down his taxable rate from 40% to 34%.
Therefore, the tax liability (excluding annual CGT allowance) would be:
£60,000 (gain) x 34% (effective rate after non-business taper relief) = £20,400
The capital gains tax liability would be £20,400
Capital gains tax liability if selling the property in the following tax year
If he waits untill the following tax year, the tax liability (excluding CGT allowance) would be:
£60,000 (gain) x 18% (flat rate capital gains tax) = £10,800
Conclusion
Should he sell now or should he try to hold out until at least
As you will already have realised from the calculations above, there is a significant tax saving by not selling the property untill the following tax year, Â i.e. until the new capital gains tax flat rate is introduced.
But what about long-standing property investors?
Even though the buy-to-let market has boomed over the past few years, there are a good number of investors who originally invested in the early 1990’s or even earlier.
Will they pay less in taxes if they sell now, or if they sell in the following tax year?
Well, the fact is that by waiting untill next year, they will definitely miss out on indexation relief and probably the maximum amount of non-business taper relief.
Let’s look at the following case study:
Julie buys a property in May 1988 for £35,000. The property is now valued at £160,000. She has made a whopping £125,000 capital gain. She is also a 40% tax payer.
Capital gains tax liability if selling the property in the current tax year
What is CGT liability if she sells before the proposed budget changes come into effect?
Indexation relief = £18,585
Non-business taper relief = Full 10 years reducing rate to 24%
This means that Julie’s tax liability (excluding CGT allowance) would be as follows:
£125,000 (gain) – £18,585 (indexation relief) x 24% (non-business taper relief) = £25,540
Therefore, her tax liability would be £25,540 if the property was sold in the current tax year.
Capital gains tax liability if selling the property in the following tax year
The capital gains tax liability if the property is sold on or after
£125,000 (gain) x 18% (flat rate capital gains tax) = £22,500
So which produces the bigger tax saving?
Once again, in this particular instance, the investor would make more of a tax saving by waiting until the following tax year.
In this particular case she would make a £3,040 tax saving.
However, it is no where near as significant as the tax saving made by the more recent property investor!
Conclusion
There is real significance in the statement “this was a pre-budget for property investors.” As we have seen in both the case studies above, holding out until the next tax year, when the flat rate tax of 18% is introduced, will bring about a tax saving for both the more recent investor and the long term investor.
However, the saving for the newer investor is far greater than for the more established investors.
Having said this, if you are considering making a sale this year or early next year then you should make a CGT calculation to determine how much tax you will be liable to pay.
What I am hearing more and more from investors is that the 18% flat rate capital gains tax payment is now “bearableâ€. Everyone hated the thought of giving 40% of their hard earned profits to the tax man, but this will no longer be the case from
Richard Smith
The Finance Zone
0845 226 9106
Article originally from  http://www.property-tax-portal.co.uk/taxarticle59.shtml
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My first reaction is “yeah right” – you watch Mr Darling squirm on this one.
There will be changes to Capital Gains Tax before the Budget in April 2008, and you will see some reliefs given to Small and Medium sized business.
Remember where you read it first.
Richard Smith
The Finance Zone 0845 226 9106
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