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Author: admin, 16.02.2014. Category: The Power Of Thinking

He has ?35,000 in cash in a Santander 123 account, and several thousand pounds of premium bonds and shares. Mr Meikle lives with his girlfriend, who is an IT adviser and has three properties of her own, including two buy-to-lets. One option is for each to sell the home they live in and for the couple to buy one together.
If Mr Meikle keeps his current home and lets it out, he will need to change his residential mortgage to a buy-to-let mortgage.
Mr Meikle's pension funding is woefully inadequate and he is not taking advantage of the tax reliefs available to him.
Mr Meikle needs access to capital, as his circumstances are likely to change, with the potential of moving home and having children. If he retires early, he may be able to use personal allowances to generate tax-free income for a period.
Mr Meikle should consider saving into Isas, as he will see tax-free growth and can use this to generate a tax-free income in retirement. Given that he won't be able to access his pension funds for at least 23 years, and, as he will be making monthly contributions, he should consider higher levels of risk to maximise long-term investment growth. As he can access the money in Isas immediately, he may prefer a medium level of risk there.
His properties may be a useful source of income in retirement but will be taxed under capital gains tax rules (18pc or 28pc) if they are sold in his lifetime, and there is the possibility of inheritance tax at 40pc if left in his estate on death. From 1 April 2016, Mr Meikle would usually have to pay a three percentage point stamp duty surcharge if buying an additional residential property. But he won't pay the extra 3pc if the property replaces his main residence and that has been sold.

If they marry they can consider if keeping properties in one name or joint names suits their tax position better. In the future, property could be transferred with no tax implication between them as spouses.
Using both capital gains tax allowances (?11,100 a year) would help when selling property, too. As for his partner's buy-to-let properties - I would sell them over two tax years, before interest rates go up, the property market falters and capital gains tax rates get worse. After mortgage payments he has around ?2,800 a month surplus from his salary and rental income.
Do I continue trying to invest in buy-to-lets, or do I diversify and look at other long-term investments? This would avoid the additional home stamp duty surcharge that applies to second-home purchases. I know I can build my cash reserves back up to in excess of ?5,000 in a few months," he said.
A retirement target of ?3,000 a month from 60 should be achievable if he retains his two buy-to-let properties, secures permanent occupancy and the mortgages are repaid. The most advantageous aspect of the pension funding exercise would be an immediate uplift of 25pc on the amount put in (through basic rate tax relief). There may be taxable consequences when funds are drawn, but thanks to 25pc of the pension fund being accessible tax-free, and the other 75pc likely to only be taxable at 20pc at most, it is very tax efficient. Using a broad spread of investment vehicles should enable him to get the income he wants in the most tax-efficient manner possible.
He should also be careful before investing in wind farms or tech start-ups, as investing in individual sectors increases risk.

If buying a new main home, he should take out a repayment mortgage with no longer than a 26-year term, so it is paid off by his target retirement age. He gets no interest on his Santander 123 account above ?20,000, so his extra ?15,000 could fund a Santander 123 for his partner, with up to 3pc interest. They each have a personal savings allowance of ?500 or ?1,000 depending on tax band, so that interest would be largely tax-free. Mr Meikle pays 40pc tax on the rental income as his salary and bonus already makes him a higher-rate taxpayer.
But there may be a period when one or the other isn't working when it may be better to have the rental income in the non-earner's name.
As family responsibilities rise, he should consider what income and life assurance protection is needed. This needs to be balanced with his wider objectives, and he should consider investment Isas. He will lose tax relief on the mortgage payments gradually from 2017 so by 2020 the tax will be almost double what it is now. They can sell their main residences and not be subject to capital gains tax rules if the sale is within 18 months of moving out.

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