Month: September 2018

VAT in ‘no deal’ Britain…

With just seven months to go, the prospect of a ‘no deal’ Brexit looks increasingly likely. Theresa May recently said that it ‘wouldn’t be the end of the world’ and the fact that HMRC have just released guidance on ‘VAT for businesses if there’s no Brexit deal’ indicates that it is more than a distant possibility, despite HMRC’s assertion that ‘a scenario in which the UK leaves the EU without agreement remains unlikely.’

For most voters, VAT was probably the last thing on their mind when they stepped into the voting booth two years ago for the Brexit vote. Immigration, sovereignty and industry were hot topics in political debates preceding the vote. VAT wasn’t really on anyone’s agenda.

However, Brexit will change a lot of things, including how the UK charges VAT on imports.

According to HMRC guidance, in the event of a ‘no deal’ scenario, the government says it will introduce ‘postponed accounting for import VAT’. This means that UK VAT-registered businesses who are importing goods to the UK will be able to account for import VAT on their return, rather than paying VAT directly at the border. This would reduce friction for imports at the border because they won’t be charged VAT on import, but later on.

Interestingly, in ‘no deal’ Britain, the government would introduce this VAT system on all imports, not only those from the 27 remaining EU nations. VAT will no longer be collected at the point that goods enter the UK’s VAT area. This means that a system known as postponed accounting would be introduced on all goods.

Why HMRC would choose to do this is a topic for debate. Perhaps the government feels constrained by WTO (World Trade Organisation) rules on differentiating between the EU27 states and the rest of the world. It could also be because HMRC may fear ‘gumming up’ the borders to an unacceptable degree. Worrying about scenes at Britain’s borders akin to a baggage handlers strike at Heathrow on ‘Brexit-Day’ would be a rational anxiety.

In the event of a no deal, the government would also abolish Low Value Consignment Relief for all imports. This means that parcels from businesses over a value of £135 and of non-zero rated goods, will be charged VAT. HMRC claim that they will implement a technology based solution to charge VAT, the details of which remain unclear, as does how HMRC are attempting to collect VAT from overseas countries.

The HMRC guidance is preliminary only and highly vague. How post-Brexit VAT will look is dependent on a whole range of factors, not least the nature of any deal eventually achieved between the UK and the EU.

The rise of ‘staycation’ buy-to-lets…

Since the Brexit vote, ‘staycations’ have become increasingly popular. This is unsurprising – for many people, going to the bureau de change has become an uncomfortable experience of seeing their hard-earned pounds transformed into a pitiful equivalent of euros or US dollars.

Recently, VisitBritain announced that there has been a 5.8% rise in domestic holidays in 2017. This looks set to continue – the Sykes Staycation index reports that 56% of all adults ‘staycationed’ in 2017 and that 74% plan to do so this year.

Purchasing a buy-to-let property in an area regularly visited by holiday makers, such as Cornwall, the Lake District or North Wales is an attractive prospect for investors – especially for those who want to invest in something they can enjoy.

Having a property you could make a considerable rental profit from during the peak season, within easy reach, sounds like a dream for landlords.

The rise of Airbnb has made it easier than ever to make a holiday property available to holidaymakers. What’s more, it provides a secure platform for both property owners and the person letting the property.

Getting a mortgage on a holiday buy-to-let has, historically, been rather difficult. On the whole, this was because lenders were wary about the potential for the property to be vacant for large periods of the year, meaning large fluctuations in landlords’ income.

In the past, they were only offered by building societies and rarely allowed owners to use the property themselves – one of the clear attractions of buying a holiday buy-to-let closer to home.

This is changing fast. A crowded buy-to-let mortgage market has meant that mortgage lenders are moving into increasingly niche areas.

Mansfield Building Society recently released a holiday BTL mortgage that provides loans of up to 70% of a property’s value and permits the landlords to occupy the property for 60 days a year.

Tipton and Coseley Building Society have even announced that they will accept applications from borrowers who wish to list their property on Airbnb.

Rising uncertainty around the eventual outcome of Brexit, with a heightened chance of ‘no deal’, means that it is ever more likely that the pound will not recover its previous heights and that travelling abroad to E.U. countries could possibly become difficult.

Potentially, ‘staycations’ will become the norm, reverting back to an earlier era of holidaying, when British people rarely strayed abroad and Britain’s seaside towns thrived.

In addition, the number of foreign tourists travelling to the U.K. for holidays is rising fast. The Office for National Statistics reports rose by 11% in 2017 on the previous year.

A holiday buy-to-let in the U.K. could be an attractive purchase for investors looking to profit from recent changes to consumer behaviour driven by Brexit.

What do you need to consider regarding a defined benefits pension transfer…

Pensions freedoms introduced three years ago mean that people are able to do what they like with their retirement savings. If you are on a defined benefit (DB) pension scheme you may be offered the opportunity to transfer out of your pension scheme in return for a fixed sum.

DB schemes promise savers a certain level of income after retirement, such as a final salary. Transferring out means that you will usually be offered between 25 to 30 times your annual pension value as a lump sum. However, it could be as much as 40 times. For instance, someone on a £10,000-per-year pension could be offered between £250,000 and £400,000.

As life expectancy has risen, the cost of DB schemes, widely considered the ‘gold standard’ of pension schemes, has risen. Companies now tend to provide less generous direct contribution schemes to newer employees.

Why would you consider transferring out?

DB pensions are very rigid in their structure. You receive X amount of money every month until you die. This doesn’t give you an enormous amount of flexibility if you plan initially to have a few years of activity after retirement before settling down into a more frugal life in your later years.

Transfer values have really shot up recently. Pension firm Xafinity claims that a 64 year old entitled to a £10,000 yearly pension starting at 65 would get £31,000 more today than they would have received in June 2017. This is making an increasing number of people explore the possibility of transferring out but it is a complex subject and important to consider all the implications.

What downsides are there?

First and foremost, on a DB pension you are guaranteed steady earnings for the rest of your life. Transferring out means you need to take responsibility for your own savings. If your circumstances change in later life and you don’t have enough savings left to cover these changes, you could find yourself in a rather difficult scenario.

DB pension schemes offer real peace of mind – something that is hard to match when managing your own pension as a lump sum. Here, you have to take responsibility for your own investments.

Secondly, think about what it is you are offered. A large sum of money paid out in one can often seem more valuable than it is. Think about how the amount you are offered compares to the regularity and consistency of a DB scheme’s payouts.

What’s more, if you transfer out you could be faced with a large tax bill. The current lifetime saving limit for pensions states that any amount over £1.03 million gets charged at 55% tax. Bear this in mind, if you are offered a payout which will take you close to the threshold.

If you are considering the option to transfer out, you should see a financial adviser. In fact, it’s the law to seek independent financial advice if you have a DB pension worth more than £30,000, before transferring out of your scheme.