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This month we ask Peter McGahan, MD of highly regarded World Wide Financial Planning independent financial advisors, (IFAs) to give his solutions and ideas to Tiscali users whose money questions we selected to be answered:
I have £300 per year spare and I was looking at the alternatives to a child trust fund like a pension or an isa for my four year old instead of a child trust fund. What are my options please?
Some people like to budget i.e. a pot for this and a pot for that. I like to save in the most tax efficient way then decide later who gets what. If I saved into an offshore bond for example, the capital would grow completely free of tax (apart from a small element of withholding tax).
When you encash the bond there is a potential tax charge but with careful mitigation there may not be any tax to pay.
Let's say you save into an offshore bond for 18 years. Now your granddaughter decides to go to university or even decides to take a gap year out for a holiday. You can now make the decision to support her in that or not, depending on your views of the situation.
If you decided to support her you could then take a segment of the bond and assign it to her and then encash it. Because of the way bonds are taxed there is likely to be no tax at all. As long as the gain on the segment of the bond is less than the personal tax allowance there would be no tax.
Given that at university or holiday its unlikely your granddaughter would be working, there would be no tax at all. And so you save free of tax with tax free withdrawals and this can be done whenever, and for whomever you choose. Be sure to seek the advice of a firm of fee-based Independent Financial advisers before acting.
Because it’s your pot of money you could also use current legislation to encash tax-free. If you became non-resident for a year you could then encash the bond free of UK tax. All with total control.
Don’t worry too much about the term offshore. Offshore insurance providers are simply a version of the onshore companies you will be used to dealing with like Standard Life for example. They just hold offshore status so the capital grows in the most tax efficient manner. Your protection does not have to be inferior to the UK company.
If you decide however, that a child trust fund is for you, consider that a stakeholder plan is cheaper and has a small range of funds but for the small amount of capital involved this may be fine.
I did up my loft as a fourth bedroom more than 8 years ago, but foolishly didn’t get planning permission. I recently sold my house for £350k but the buyers valuation refuses to recognises the value of the extension and so the buyer says I have to reduce the price to at least £280k, or he won’t buy. What’s the situation on this? Can I get permission somehow now?
It is possible to get something which is known as 'retrospective planning permission'. This is where planning permission is granted AFTER the work has been carried out.
It is important to note that a retrospective planning application will be dealt with in exactly the same manner as a normal planning application. Therefore you would need to be confident that the planning will be granted otherwise you may have to restore the loft to its original condition.
I would recommend you speak with a suitably qualified architect to advise you on the situation before taking the matter further. The architect will be best placed to advise you on what your options are and a best course of action for you to take.
Peter McGahan Independent Financial Adviser Worldwide Financial Planning
At the moment I am an apprentice, I'm looking to buy a place soonish but because I'm an apprentice I'm only earning around 14000 PA. When I come out of my time however I will be on a starting wage of around 26000 PA. At the moment I have about 20000 saved up for a deposit.
So the question I really need answering is there any type of mortgage for this type of thing or will I just have to wait until I'm on more money before thinking of moving out?
Firstly, well done on saving up the deposit, that’s a great start. When are you expecting to get the pay rise?
If it will be in a month or two, then you could probably get the mortgage now with the intention of completing the purchase once you have the pay rise. So essentially you could get the ball moving now and start looking for a home and putting in offers.
However if the pay rise is still a fair way off, the unfortunately you will probably have to wait.
If you would like more information, I would suggest that you contact an independent mortgage broker and discuss the details of your situation.
Is commercial property a good investment now? And are there signs that the commercial property market is returning to health?
It does have potential for some excellent investment gains over the coming six to twelve months.
Remember with all investments in property, hindsight and 'present day sight' have no value. It is only foresight that allows you to make informed investment decisions. Commercial property as an asset will be slow but there are opportunities to look for in the short term to take advantage of the fact that financial Armageddon has not happened.
There are a couple of early triggers to look for: Investment volumes is one, and derivative pricing is another, and there is an improvement in both. Derivatives is the future price being placed on property investments. It is normal to call a high in the property investment market whenever everyone is saying 'you cant go wrong', and a low when everyone is saying 'you cant go right'. The masses unfortunately don’t always think that way but I suppose that’s how markets are created.
Seeing through the noise is always key. In 2005 I looked at the yield on property investment versus a risk free asset. It showed that property was not a worthwhile investment and the more it rose, the more it showed that it was a bigger bubble. Today the yield (rental investment return) margin on property over government bonds is one of the earliest signs that property investment is close to recovery.
A ten year Gilt is the normal benchmark and this is because it is often a proxy for the rate at which we can borrow i.e. the risk free rate. If you assess the spread between the two yields, this is another measure if an investment in property is likely to turn out to be a wise choice.
The aim of Quantitative easing was to lower medium and long term gilt yields. Because commercial property has plummeted in value the rent when compared to the value has effectively increased. Currently the yield spread between the two is sitting at 4%, a clear signal that commercial property investment is offering an excellent yield for investors.
There is no doubt that interest rates remain artificially low because of quantitative easing, coupled with the bank of England interest rate policy, but we are in unchartered territories here as never before have these measures been taken.
Signs that eastern banks are already moving in to lend in the Uk will be welcomed along with the thriving European lending. All we need is the cumbersome sleepy Uk banks to break from their coma, and this will allow investors and property owners alike the opportunity to restructure their business finance.
Are REITs a better way to get invested in commercial property?
I believe so and have believed that to be the case for the last five months. Lets look at some facts. The CBRE has announced that rental yield have indeed hardened since the 4th quarter of 2006 .
Furthermore the highly regarded west end teams of real estate investment trusts (REITs) will look to target distressed assets with their huge amounts of built up cash. Remember that many of these REITs have raised considerable cash over the last six months and one, London and Stamford, was more than twice oversubscribed. They did this after their earlier investment at the beginning of 2009 increased in value even though the market declined.
Unlike other types of investment, REITs often trade at a discount to their net asset value. What does that mean? Imagine ten commercial properties have fallen in value and are now worth £200,000 each and are owned by a REIT. So there is £2m worth of properties even after the fall. A REIT is an investment trust (a company) that can trade at a discount or premium to the net asset value of what it is invested into. So if you were to buy all the shares today in a company that owned the aforementioned £2m, you might buy the shares at a discount which in today's terms might be as much as half.
Discounts widen or narrow based on confidence. If the market turns confident, the discount narrows even if the assets remain flat in value. For some, that discount narrowing could be an immediate 100% uplift in their investment.
Much of the uplift in this sector will probably come via investment in equities as the colossal stockpiles of cash look for a home for quality yields. Once this has taken shape the fixed asset itself will be right behind it.
And if coupled with this confidence banks are able to relax their lending criteria, companies and property owners will be able to review their business finance effectively, thereby cutting down costs, creating more liquidity and creating an upward spiral.
I have always wanted to build my own house. Is it possible to get a mortgage that will allow me to do this?
Yes, what you need is a self build mortgage. If you can find a suitable plot with planning permission a lender will grant you a mortgage to allow to buy the plot and will release funds in stages in order to enable you to build the property.
The lender will base the total mortgage on what the final value of the property will be. They will then lend up to 75% of its value at any stage in order for you to progressively do the build.
I recommend you speak with an independent mortgage broker who specialises in self build mortgages to look at your circumstances in more detail.
Peter McGahan, independent financial adviser
