Finance
Most house purchases are financed with the aid of mortgage. This is a loan under which, in return for advancing the money, the lender takes the deeds, and can prevent any sale of the property until the loan is repaid, as well as taking legal proceedings to acquire possession of the property if the repayments are not kept up. The great majority of loans for house purchase come from building societies, although banks, insurance companies and local authorities will also lend money for that purpose in certain circumstances. There are strict rules laid down by each society as to how much they will lend. The usual formula is based on earnings and the age and value of the property. Thus a society might lend up to three times of the husband’s income, with a ceiling of 85 percent of the valuation or price of the property, subject to a maximum advance repayable over 20 or 25 years.
Some lend more than others some give more weight to the wife’s earnings some will not lend on old properties or conversions; and most insist that you have saved with them in the past. So shopping around is often a good idea, as is regular saving with a building society. There are two basic types of mortgage combined interest/capital and endowment. Under the combined interest/capital type, you pay a monthly sum which meets the interest and makes a small contribution towards the capital sum. You can then claim tax relief on the interest element. These schemes are so arranged that after a few years you have repaid almost all the interest that will fall due over the term of the loan, so that the bulk of the repayments then go to reducing the debt itself. Thus the proportion eligible for tax relief gradually diminishes.
Procedures for House Purchase
Although it is possible to all this yourself, or entrust it to a convincing organization, most people use solicitors to handle the legal work involved in house purchase. When all the preliminaries have been completed, and each party is satisfied, contracts can be exchanged. The property is then at the buyers’ risk and he should immediately take out insurance. The exchange of contracts is an important step, because the deal then becomes binding, and failure to go through with it on the appointed day will prove very costly. To comply with legal requirements, a conveyance must be drawn up. This is the formal document transferring ownership of the property to the purchaser. It is possible to do yourself, but without any knowledge of law, it can be most time-consuming, and could cause untold problems later if any mistakes are made.
Searches and Surveys
As indicated, it is crucial that town hall records to be checked. If any development is proposed such as new housing estate or road it could have a powerful effect on house prices, and might make you think twice about buying the property in question. At the same time it is usually the case that a check is carried out to see that any building work carried out on the house was, where appropriate, covered by planning permission or building regulation consent. Details of most properties are now stored at the Land Registry, and a check will reveal whether, for instance, there are any limitations on the disposal or sue of the property that you are intending to buy. Unless you are extremely confident, it is wise to commission a private survey of the property. This should reveal any structural defects and will cover the general condition of the place. It might affect your decision to buy, or at least warn you of any work that might need to be done. Surveyor’s reports vary enormously, as do their prices. Ask your solicitor or friends to recommend one.
House Purchase
Buying a house or flat is not an easy business. There are seemingly innumerable stages to go through, and the whole process can often take three months or more to complete. A good deal of expense is also involved. Looking for a suitable property can itself take some considerable time. Once something likely has been located, it is necessary to make an offer. Deciding how much to offer is not easy. Factors such as the asking price, the condition of the property, how much you want it and the availability of finance must all be taken into account. When the offer has been accepted things become even more complex and hectic. For a start, until contracts have been exchanged, there is no binding contract, and either party can therefore withdraw. Apart from the distress and inconvenience that this can cause, it can also be expensive, because money may have been spent in preparing contracts, surveys, etc., and this cannot be recovered.
A great deal of work needs to be done, usually by solicitors, before contracts are exchanged. The deeds to the property need to be checked; searches at the Land Registry must be conducted; local plans at the town hall should be studied to see if any major development.
Unemployment Benefit
Those who lose their jobs can claim unemployment benefit if they do not immediately start a new job. The rules governing eligibility are rather detailed for instance; you can be denied benefit for several weeks if the department of employment official thinks that it was your own fault that you lost your job. And as with sickness benefit, length of total employment is relevant. However, those who fail to qualify because they do not have enough national insurance contributions to their name, may still be entitled to supplementary benefit. Unemployment benefit will normally be paid for a maximum of 12months, after which the claimant will have to rely on supplementary benefit.
Pensions
Most people are entitled to a pension from the state when they retire. The retirement ages at the moment are 60 for women and 65 form men. It is possible though, to continue working beyond those ages, in which event the pension will not be paid until work is finally stopped, although it will then be paid at a higher rate. And the rules currently allow people to earn quite a lot after attaining retirement age without their pension being withheld.
The amount of the pension is based primarily on National Insurance Contributions, on how many years have been worked and how much was earned. In view of the importance of knowing what your pension will be, and what rules govern any work you might want to do after retiring, it is clearly sensible to ask the department of health and social security for advice.
Some other Benefits of Taxation
Child Benefit: This is a payment made to mothers for each of their children, meaning those under 16, or under 19 if they are in full-time education. it is paid via the post office, and was brought in to replace the old tax allowance for children.
Family Income Benefit
Whereas supplementary benefit is not payable to those in work, FIS is a benefit which is available to families on very low earned income.
Sickness benefit
If you are unable to work because of illness, you may be entitled to sickness benefit from the DHSS. This is paid for 27.5 weeks, after which invalidity benefit will be normally payable. Eligibility for sickness benefit is based on the length of time you have been in employment, because the DHSS looks at how long national insurance contributions have been paid. The national insurance contributions have been paid. The calculations are rather involved, but for the first year or two in work you are unlikely to be entitled to sickness benefit, although thereafter there should be no problem unless there is a significant break.
Women who take time off to have children are therefore somewhat vulnerable. The amount paid is based to some extent on how much you have been earning. To claim, you need a certificate from your GP, which must be sent to the DHSS. No benefit is paid for the first three days. and most firms which operate their own sick pay scheme will deduct from what they pay you an amount equal to what you should be getting from the DHSS.
Benefits and Allowances
The social security system in the UK is designed to ensure that anyone needing financial help in order to subsist will receive it. the amounts paid may not be generous, and will as a rule cover only bare essentials, but everyone is entitled, if the circumstances are right, to have help from the state if they are without any means of support. Unfortunately, the system has become extremely complicated, with a number of different agencies, and with different levels of payment and different methods of calculating entitlement.
Supplementary Benefit
This is the safety net of the social security system. The criterion is need, and factors such as length of employment, previous earnings and so on, do not enter into it. Anyone who is not in paid full-time employment can apply, and if they are found to have needs which cannot be met from other sources they will be eligible for supplementary benefit. There is a basic level of payment, which is periodically increased to take account of inflation, with additional payments to cover dependants and certain outgoings such as rent, children’s clothes and the like.
It is permissible to earn a small amount of money without entitlement being affected, but the social security office should be consulted to ascertain the current position. Many people who claim supplementary benefit do so because they are not eligible for unemployment benefit or sickness benefit on technical grounds, although a claimant may still be entitled to supplementary benefit if he is receiving certain other benefits.
Tax-Saving Hints
Unless you earn large amounts of money, it is really not worth worrying about devices for minimizing your tax bill. By and large, it is better to have a mortgage on a property than to use capital to finance a purchase, because of the generous tax relief on the interest. If you want to save, a pension scheme is a good way of doing it, if you do not already belong to an occupational pension scheme, because again the tax treatment of the premiums is favorable. If you have children going through university or college, and are paying their grant, the use of a covenant will reduce the overall cost. Many firms offer staff a range of fringe benefits such as company cars, cheap loans and free insurance. From the tax viewpoint, these benefits are usually worth having, because you will be taxed less on the benefit than on a comparable amount of extra salary.
If you do not pay your Tax Bill
Those taxed under PAYE have no choice but to pay, because the money is taken from their pay before they get it. The self-employed, though, pay their own tax, in two annual installments. Any delay in paying on the date specified in the tax assessments will mean that interest, currently 12 per cent a year, must be paid. And if the delay persists, the Inland Revenue can take action to obtain the money. They can either remove your goods or sell them to meet the debt, or take action through the courts. If suing does not bring forth payment, then the usual procedure is to commence bankruptcy proceedings. If the Inland Revenue does obtain judgment against you, it is essential to pay up immediately because proceedings can start at once.
Tax Deduction
Husbands and Wives and Self-employed
There are number of ways in which the incomes of husbands and wives who both work can be taxed. For those with relatively high incomes the decision as to which method to opt for can have important consequences and advice should be sought from an accountant.
Self-Employed
Only those who are employed can be taxed under PAYE. Those who are self-employed are responsible for making their own arrangements to pay tax. The procedures are quite complicated, and will often require the services of an accountant, because it is necessary to draw up profit and loss accounts for the business. However, the tax due on the profits is paid in arrears, which is obviously advantageous. And the self employed enjoy much more favorable rules regarding business expenses than do employees. As long as it can be shown that a particular expense was incurred in connection with the business activity, then it is tax deductible.
If you disagree with the amount of tax deducted
It is fairly unusual for employees to have any serious disputes over their tax position. For more disagreements crop up between the tax authorities and the self-employed. Profit levels may be queried, expenses may not be allowed as deductions and so on. Often agreement can eventually be reached by negotiation, but if that is not possible the matter is likely to end up before the income tax commissioners, referred either by the tax inspector or by the taxpayer. The commissioners will hear the arguments and then decide whether a particular assessment to tax should be upheld or not. The dispute can revolve round either the interpretation of facts or points of law, or both. In any event, such proceedings, while relatively informal, are nonetheless rather involved, and it would be unwise to pursue an appeal to the commissioners unless the sums involves are reasonably large, because help from an accountant may well be needed.
More Information about Income Tax
Secondly, it is up to you to make sure that you claim the reliefs and allowances to which you are entitled. This means filling in your tax return as soon as it is sent to you by the Inland Revenue each year, and also notifying your local tax office if there is any change in your circumstances. These include getting married, taking on a mortgage, losing or acquiring certain fringe benefits, incurring expenses related to work and reaching retirement age. Other things are likely to increase your tax liability and these too must be notified to the tax authorities. Apart from ceasing to be eligible for any of the above reliefs and allowances, any interest which you receive from investments on which tax has not been deducted at source, will mean that you have to pay income tax on it. The Inland Revenue looks at all of these factors, and works out the total that you are allowed tax-free. This is then converted into a code number, and using that code, your employer can calculate your ongoing tax liability.
Changing jobs, or becoming unemployed, can affect your tax position, for obvious reasons. If you do lose your job, then, under PAYE, you may be entitled to a tax refund. Either your ex-employer or the local unemployment office or tax office will advise you. Because PAYE is self correcting, any refunds due to you are normally implemented in the course of the tax year. However, delays can occur, particularly if there is some dispute over whether you are entitled to particular allowances.
Income Tax
There are very few ways of acquiring money in this country which escape the demands of the Inland Revenue. If it is earned, then it is taxable. If it is unearned, in the sense of coming from interest payments on savings, then again it is taxable, and sometimes at a higher rate. If you sell something at a profit, a tax bill will eventually follow. Presents of cash or property can be taxable, if they are large enough, although the tax is normally payable by the donor. Similarly, bequests attract tax. Income tax is the main source of revenue for the government. Anyone who earns enough money to come within the tax net will have to pay a proportion of that income by way of income tax, and the greater the level of earnings, the greater the proportion of tax.
As indicted, and as is obvious from its name, this is a tax levied on income. It is a progressive tax, in that the percentage payable rises according to the level of income. Anyone who is employed will be taxed under the PAYE scheme, and the employer will simply deduct enough money each week or month to settle the tax bill up to that point. But although that undoubtedly simplifies matters, it does not mean that the employee can afford to ignore what is being done. For a start, mistakes can be made. The tables produced by Inland Revenue which set out the tax deduction to be made are fairly complicated, and the wrong figures could be read off. By adding together your reliefs and allowances, it is possible to work out roughly what your regular tax bill should be. So, if the amount actually takes, and your own calculations, are wildly out, you should query it.
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