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Amrita owns a buy to let property and is a renter herself. She has been renting for over a year and wants to buy a home to live in. She wonders if she will have to be pay the extra 3 per cent stamp duty tax on the purchase of her new home. In addition, if she is subject to the extra 3% tax, she asks if she can she avoid it by buying her home through a limited company?
That’s what we answer in this short podcast. If you need advice for your own situation, please contact a mortgage broker or personal financial advisor.
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.I always say that if you get nothing else right in your financial life, at least own where you live outright by the time you hit retirement and ideally much earlier. Well that’s not quite right, the other thing you need to make sure of, is that you qualify for the full UK state pension.
Currently, when I am 68, for so long as I have 35 qualifying years, I will get £185/week in state pension until my dying day. That’s about £800/month or £9,620/year. This is not an insignificant amount and if you live with someone, i.e. your partner, a sibling or friend, it’s double that as you would each qualify separately. My calculations suggest that if you’re living on your own, that amount of state pension would at least cover all basic utilities (water, energy, council tax) and food. You can check how many qualifying years you have and whether you can boost them at gov.uk/check-state-pension. If you’re self-employed, to qualify for the full state pension later on, make sure you’re signed up to pay Class 2 national insurance and if there are any gaps in your national insurance record, pay for them asap as you can only fill gaps going back 6 years: gov.uk/national-insurance/national-insurance-classes As the state pension is unlikely to be enough, it’s helpful to contribute towards a personal pension (aka a self-invested personal pension or SIPP) as pension contributions get tax relief such taht every £240/month contribution equates to £300/month into your pension pot. Based on a 7% gross growth rate of your pension pot (and keeping in mind the historic average return of the S&P 500 is 10%)
If you want to play around with how much you should expect to spend in retirement, here are a few other helpful blogs:
When you’re at one point in your life it’s often nearly impossible to imagine having much more than what you’ve got – or maybe that’s just my lack of imagination – anyhow, in this podcast I recount the steps we went through to move from our £385,000 beautiful terraced home to a £1.1m detached bungalow in the same neighbourhood.
We did all this in 2020 but, even as recently as in 2017, when I walked past the homes on the street where we now live, I thought actually living in one of them was pure fantasy for us and at that point, it was. It took getting a proper second income, a stamp-duty holiday and an all-time low 5-year fixed interest rate of 1% to achieve this, oh, and a few consumer loans for a short period. Was it worth it, 100%. One thing I forget to mention in the episode is that one of the key drivers was I saw already expensive properties getting more expensive and mid-priced (like our terrace) to low-priced properties appreciating very little in value or even falling in price – how does that work? I am not sure but I figured there was some kind of bifurcation in the property market with average incomes driving prices on the lower end and something bigger at play with bigger, more expensive properties – they tended to be owned by business people not restricted by average incomes, some people with inheritances and hence large sums to play with and people with much larger incomes…whatever it was, I wanted in. The funny thing is, if we sold our new house right now, we would be in a position to buy our old house mortgage-free AND still have £200,000 to £300,000 in change ALTHOUGH our old house has gone up by about £30-40k! Listen to the episode and let me know if you have questions. Here’s my property course on Udemy.
If you’re looking for ideas on how you and your partner can split the household bills without arguing about it, I have a few ideas for you.
Obviously what you ultimately go for depends on your own specific circumstances, e.g. whether you’re married or in a civil partnership or not in either, employment status, differences in income and personal beliefs, however, you can either: 1.Split bills fairly – this can mean equally, i.e. 50-50; or in proportion to your incomes. 2.Approach finances with unity – i.e. all money earned belongs to the household regardless of who earned it and is managed in a unified way. This can work whether your salaries are paid into personal accounts or a single joint account. This is all food for thought, not advice, if you want advice based on your own circumstances, speak to a personal financial advisor. Ask me a question...
If you’re over 55 and own your home outright or have significant equity, banks target you for equity release schemes. There are two types: lifetime mortgages and home reversion schemes.
With a lifetime mortgage you generally get a loan based on the value of your house and your age – the higher your home’s value and the older you are the bigger the loan you can get. Then, rather than pay interest monthly, compound interest is charged and accumulates without payment until your death at which point your house is sold to pay off the borrowed money and accumulated interest. Most lifetime mortgages have a ‘no negative equity’ clause which means you can lose the full value of your home if you live long enough but no more – there’s a sexy deal if I ever saw one! With home reversion you part-sell your home with a right to stay in it until you die or move to a car home. Typically, the loan is worth far less than the actual value of your home. So, if you own a £100k home you might be offered £30k for half ownership. Any increase in value is also shared 50-50. In this example, if the house doubles in value from £100k to £200k you’re only entitled to half, i.e. £100k. Most people who enter into these schemes are not fully aware of the risks and I don’t believe financial advisors and banks market them in an appropriate way. My personal opinion is that to go from owning your home outright to releasing equity, you introduce a potential stressor to your life that you previously didn’t have. Getting lodgers or letting rooms on AirBnb or even getting a part time job may well be able to address your financial issues more efficiently than releasing equity. Anyhow, in this episode, I talk about equity release. This is all information and not advice. If you need advice on specifics, speak to a personal financial advisor. Ask me a question. Don't Go Henry, Go Cash, First - rushing kids onto bank cards could ruin their financial future5/5/2022
,There are a lot of apps out there right now purporting they’re the divine intervention you’ve been waiting for to turn your kids into personal finance ninjas…news flash: you can’t delegate teaching your kids about money to an app.
The app may be able to relay some basic knowledge but ultimately the best builders of wealth need to only master one thing: their emotions. And, like as not, all the behaviours around money in your house – and yes, not talking about money at all counts as ‘a behaviour’ are all adding up towards what your children will ultimately believe about money and how it ought to function in their lives. This is what financial psychologist, Brad Klontz, calls money scripts. In addition, we humans are hard wired with certain biases: loss aversion, optimism or confidence bias, the pull of instant gratification, action bias and a bias towards earning rather than saving, to name a few. The money scripts you pass on to your children interact with these biases to determine their future responses, fears, anxities and attitude to their financial affairs. So, now that I have scared the bejesus out of you, what can you do to pass on a more rational approach to money. Well, before you expose them to cash cards or debit cards give them cash – I’m a supporter of making them earn it – then see what they instinctively want to do with it and capitalise on the teaching moments that will bring, and there will be many. My son’s basic knowledge of money acquired through our going through stage 1 of B.School for Money-wise, Wealth-bound kids means we are now having really good discussions about money and his reactions to it. And having heard Brad Klontz on Paula Pant’s Afford Anything and now on Hidden Brain I have bought Money Mammoth (Amazon USA, Amazon UK) and if I enjoy that I will read more of his books. Are you consciously thinking about how your household’s behaviours around money are impacting your impressionable little ones?
I haven’t written a single blog post in 2021 and I’ll explain why in a future post, in the meantime, I need to offload this issue that’s been gnawing at me for a couple of weeks.
Now, I disagree with Martin Lewis (the founder of moneysavingexpert.com) on many issues related to debt but on no issue are we more at logger heads than on student loans! Martin Lewis is of the view that UK student loans are not really loans but a form of tax, a graduate tax, in his view…his reasons for thinking this way are based on the way student loans are currently structured: This is how it works, if one takes out student loans over the course of say, a 3-year degree and ultimately graduate with a balance of £50,000 in student debt (for argument’s sake) – it is possible that you may never have to pay this back if you are a low earner all your life. This is because student loan repayments currently only need to be repaid when you earn £27,295 or more and even then, the repayment is structured such that you only repay at a rate of 9% over that threshold. So, if you earn £30,000 a year, your student loan repayment is: (30,000 – 27,295) x 9% = 2,705 x 9% = 243.45 or c. £20.30 per month Even if you were on a £60,000 per annum salary the annual repayment would only be £2,945 or £245 a month. Presented this way, it does look like a problem not really worth worrying about BUT viewing the student loan as a tax ignores the following critical issues: 1. UK student loans are not interest free
Unlike in New Zealand where student loans are fully interest free, in the UK you start accruing interest as soon as you take the loan out – they don’t even let you graduate first. If it was interest free and the government was solid in its stance on that, I would see where Michael Lewis is coming from but it isn’t.
Student loan interest rates used to be low (c.1%) but are now two to three times higher than mortgage rates having ranged from 4% to 6.6% (currently the best 5-year fixed interest rates on mortgages are just sub-1%). 2. The repayment threshold can change, so: caveat emptor
The repayment threshold can change…and a reduction in that threshold to £23,000 is believed to be in the government’s near-term plans. What this would mean is that many more people would be captured by loan repayments, after all, who goes to university to earn less than £23k, right? The median starting salary for graduates in 2021 is c.£30,000 (Highfliers.co.uk). Indeed, I would hope that all graduates can hope to earn in excess of £27k (the current threshold for student loan repayments) within a few years of graduating.
So, the person on a salary of £30k/year goes from repaying £20.30 per month to £52.50 (that’s £630 per year) and this is really quite substantial at that wage when you’re likely also saving to buy a home. The person on £60k/year goes from repaying £245 per month to £277.50 (that’s £3,330 per year) Basically, everyone already captured by the threshold pays an extra £32.50/month or £390/year. 3. Student loans might not be forgiven in the future
Currently, after 30 years the loan is forgiven but that could change any time, the government could increase that to 35 years, 40 years or even decide that student loans are never forgiven and any debts owed need to be deducted from the deceased estate. I hope it never comes to this but most other loans aren’t forgiven on death so if the government were cash strapped they could make a case for this.
If you think this is far-fetched, don't - this is how it already works in America. 4. Student loans reduce the rate at which you can save, invest and jump onto the property ladder
Finally, this is not a graduate tax because you do not pay it as result of having graduated. You only pay it if you have availed yourself of a student loan. Those graduates that graduate without student loans are able to save and invest at a faster rate including getting onto the property ladder faster.
If the graduate on £30k per annum saved £20/month into an index fund growing at 7% gross per annum they would have c.£24,500 in investment value in 30 years’ time, or £45,600 at a growth rate of 10% gross which is the actual historical growth rate of the stock market. And that £60k per annum highflyer? Well, if they saved £245/month into an index fund growing at 7% gross per annum they would have just shy of £301k in investment value in 30 years’ time, or almost £560k at a growth rate of 10% gross – that’s over half a million pounds. Note that, in reality, this person would have paid the student loan off after 21 years but I have used 30 years to compare to the previous example. At 21 years the figures are £141k (at 7%) and £211k (at 10%) respectively – that extra 9 years of saving and compounding really adds up. Not having a student loan impacts your ability to accumulate wealth. It could make a big difference to how soon you can get on the property ladder. In the ideal world, student loans wouldn’t exist and everyone could get a tertiary education for free. However, student loans do exist and I think it is helpful to view them as loans and to either avoid them or use them wisely. For instance, I had friends put the full value of their student loan into an ISA while their parents cash flowed their university fees – now that was smart and was one way to buy a home sooner. Some people choose to work hard during holidays to cover their living costs. Our own strategy was to plan far in advance. We saved £4k per annum per child until their 5th birthday (and in the first few years this was at the expense of saving for our own retirement) and that £20k is left to grow until it’s needed for university. Our almost 7 year old’s £20k is now worth c.£32k and our 4.5 year old’s £20k is now worth c.£25k – we managed to get to £20k sooner for her and that’s now released us to focus on our own savings. We, of course, have no idea how student fees will evolve over the next decade or so but we hope that this strategy will at least make a huge dent to the cost. See my post: Q&A: How can I save and invest for my children?
To round up 2020, I thought some might like to learn a little more about me as an individual. And, because I prefer not to talk about myself I thought I'd share an interview that I had with Alex Sapala who invited me onto his show, the Business, Wealth And Mindset Podcast. Alex is one of the most successful and ambitious Malawians living in Britain today, he's made a massive success of himself in the work place and also with property investing but you would never know because he keeps himself humble.
Alex with Heather who shares her fascinating journey and discusses why she has chosen to be employed in a role that offers her flexibility and the time to undertake the hobbies she loves.
This is a great opportunity to hear from someone who experienced being employed and working for herself before making a conscious choice to be employed. It’s always vital to find out what makes you happy, what is the real you and how to achieve this in life. KEY TAKEAWAYS
BEST MOMENTS
VALUABLE RESOURCES ABOUT THE GUEST Heather Katsonga-Woodward Having spent 7 years in investment banking at Goldman Sachs (Corporate Finance) and HSBC (Corporate Derivatives Structuring) and a further 6 years pursuing her own business interests, Heather is currently a civil servant. She describes it as the best job she’s ever had. Heather is an investor in property, the stock market and as a hobby enjoys creating personal finance digital learning resources that can be found at katsonga.com and on the podcast, The Money Spot™️. Her courses on Udemy (on property and business) had attracted over 10,000 students as at 2020. Heather graduated with First Class Honours in Economics from the University of Cambridge. She has the CFA Charter, the ACCA accounting qualification and the Certificate in Mortgage Advice and Practice (CeMAP). She lives in Birmingham (UK) with her husband and two children. ABOUT THE HOST Alex is a prize-winning chartered accountant with experience in financial markets from trading finance, capital hedging, structural foreign exchange and interest rates to operational risk from the world’s top financial and advisory institutions including Deloitte, RBS and JPMorgan Chase Alex has been involved in property development programmes across different types since 2008, building and managing a portfolio that includes standard buy-to-lets, student accommodation and other houses in multiple occupancy (HMOs). He specialises in raising finance, providing potential investors, investors and joint venture partners with ad hoc (to their specific requirements), hands-free and hassle-free property investments solutions as well as coaching and mentoring Alex aspires to share business and financial knowledge with upcoming entrepreneurs and experienced business minds to learn and master the concepts and mindsets required to succeed, stand-out, have the edge and make a difference. Alex is also a keen traveller, cyclist and photographer. CONTACT METHOD My very best, Heather p.s. subscribe to my podcast and ask me any money question, HERE - do it now!
Building on the last post on 7 things that hold black children back from succeeding. This is the current Economic status of black people in the UK relative to other groups:
ASSETS
On home ownership According to .gov.uk:
On pensions assets: According to a January 2020 report by the People Pension, compared to White ethnic groups,
The average gap between a female pensioner from an ethnic minority group and male pensioner from white ethnic groups is 51% (half). This figure is 27% for an ethnic minority male pensioner. The average ethnic minority pensioner has £3,350 less in annual pension income. Ethnic minorities are also less likely to qualify for auto-enrolment into a work place pension because they are more likely to earn less than the auto-enrolment threshold of £10,000. INCOME According to gov.uk: In the year ending March 2019, the median annual household income in each quintile before housing costs were paid was:
If we look at the bottom two income quintiles, that is the lowest 40% of income earners,
These figures are before housing costs. The picture changes a little bit after housing costs but I chose to present the ‘before housing costs’ picture because there is a degree of discretion with regards to how much a household decides to spend on housing. While there are income disparities that will feed the gap between the assets of the rich and the assets of the poor, I feel as though the reasoning behind the asset differential is very basic and needs further exploration. On job security: Do ethnic minorities just work less and as a result earn less? No! According to gov.uk:
Based on these stats, the employment rate for black people is 8 points lower than the average for the population and 15 points lower than for Whites. In addition, it’s worth noting that Black people and other minorities are more likely to be self-employed, be on zero hours contracts and are generally more likely to be employed in less secure lower income jobs including as part of the gig economy. Two things stand out as definitely missing:
The UK doesn’t have an identical history to the US and certainly I don’t think UK mortgage lenders discriminate according to race directly or indirectly but if someone thinks they do, I’d love to hear their story. Remittances are a key component of economic growth in Africa. According to Pew Research, "money sent by the African diaspora to their home countries in sub-Saharan Africa reached a record $41 billion in 2017...a 10% jump in remittances from the previous year", another source suggests $46 billion was remitted in 2018, that would be the official figures but billions more are remitted via unrecorded channels. Official development aid to Africa was just shy of $52.8 billion in 2017 (OECD 2019 statistic). Provided this money isn't all being used for consumption, wealth accumulation by Africans is underestimated if we look purely at wealth held by the diaspora within the countries they live. In addition, after discussing the issue of low rates of home ownership with my African peers other factors to consider include:
Social mobility According to research from the University of Manchester,
FACTORS THAT COULD HOLD BLACK PEOPLE BACK When it comes to discrimination in the labour market, some of the same things that lead to targeting or discrimination in the formative years (as described in my previous post) can also adversely affect the likelihood of black people getting well paid jobs:
So there you have it. This is a summary of the current wealth and income stats for black people in Britain. I think it raises a lot of questions. I would love for people to contact me and leave a voice message or a note at katsonga.com/coach or as a comment on this post explaining what they think has helped them succeed or what they believe is holding them back from progressing to higher levels in their career and in building wealth. Heather p.s. subscribe to my podcast and ask me any money question, HERE - do it now!
I thought it would be fitting to end the 2020 series of The Money Spot podcast with a series on the Economics of being black. The issue I would like to explore first is a list of things that could hold a child back before they are even 18.
Where possible, I will depend on UK studies and statistics but if that’s not possible reference will be made to US studies where much more research on race tends to be available. 
1. Name
Having a name that is perceived as “different” may be a factor that exacerbates a black child’s feeling of otherness, of being different to the mainstream. In the worst case, it may lead to teasing or just feeling discomfort and insecurity with what might seem like innocent questions from teachers, like “how do you say your name?” I’ll talk more about names in my piece about what holds black adults back. Personally, our desire for our children not to be discriminated against in mainstream British society was a key consideration in name selection. We want them to blend to the extent possible and didn’t feel that name was an issue they should need to deal with in addition to everything else. 2. Hair Is there an issue more contentious? My son noticed the difference in his hair before he mentioned that his colour was different to that of everyone else in his class. There are many anecdotal examples of black children being treated in an unfair way at school on account of their hair, for example:
But, while a name and hair, in addition to skin colour may add to a feeling of being different, there are real and recent statistics from the Social Market Foundation and other research organisations to show that black children are discriminated against at higher rates: 3. The perception of being threatening There is a perception and stereotype of being threatening which especially haunts black boys. In studies, black boys as young as 5 years old have been perceived as more threatening compared to similar aged white boys which is a scary fact. This has been elicited with tests of association of faces and objects like guns or puppies rather than by asking directly. And where as being “tall and dark” would give a white boy advantages with perceptions of stature, strength and athleticism – for a black boy the exact same tallness and darkness may only serve to make them appear more threatening and with that all the disadvantages: more regular police stop-and-searches and fewer opportunities. This sentiment is my own, rather than from elsewhere but it is something that recently occurred to me as a risk. 4. At-school and In-class discrimination The Social Market Foundation reports that “discrimination in education frequently takes place outside of the syllabus. There are a range of institutional practices that underpin Black students’ exclusion and, ultimately, their educational attainment.” For example:
So, unfortunate as it is, black children especially black boys face discrimination at much higher rates at school. I haven’t found any research to back it up but a friend who works in the field told me that some recent studies suggest that black boys are ahead of all other ethnic groups on entering school but within a year they are behind others because of the poor engagement they receive. 5. Low expectations Akala in his autobiographical, “Natives: Race and Class in the Ruins of Empire” recounts how he was a gifted child, highly intelligent with a GCSE reading age by the time he was 7 and yet, he was placed in a class with children with learning difficulties. It took his (white) mother advocating for him and speaking up for this to change. And in her time on Desert Island discs Sonita Alleyne, the first black Master of a Cambridge college admits that exactly the same thing happened to her when she arrived from Barbados as a young child. Placed in the special needs class, her mum walked into school and explained that her daughter’s accent wasn’t a sign or symptom of being stupid. The most frustrating thing about these examples is that similar things are happening to many black children today and they don’t have an advocate. What of those children that reveal they want to be a doctor, lawyer or astronaut that are told to be realistic and guided towards nursing, hair dressing, plumbing and other manual jobs. Or towards sports and more artistic jobs like music – yes, there are more examples of black people succeeding in these fields but this is simply because you can’t pretend the boy or girl who came first in the 200m sprint actually didn’t. If nurtured correctly there’s nothing to stop black children excelling in any and every field. Further, many black children up and down Britain simply assume it’s “stupid” or “unrealistic” for them to aim for Oxford and Cambridge and there is no one there telling them otherwise. Conversely, the majority of those in private schools assume it’s a given that they are expected to apply to the top universities. Not long ago women had many of the same challenges – in her time on Desert Island discs retired surgeon Averil Mansfield (born in 1937) says her mum told her to lie she wanted to be a nurse rather than admit she wanted to be a doctor to avoid the mockery. Any girl can say they want to be a doctor now and no one would bat an eyelid and that is the position I would love all disadvantaged children and black children specifically to get to. 6. Poverty People can live in a vicious cycle of poverty from which they struggle to escape. What proportion of black children live in poverty? The Social Metrics Commission found that almost half of people living in a family in the UK where the head of the household is black are in poverty. This compares with 19% or about a fifth for white people. This means black-headed households in the UK are 2.5 times more likely to live in poverty than their white counterparts. Poverty comes with many disadvantages that you can probably list yourself, a few that are commonly discussed in the press include:
These are example economic factors but poverty, of course, also has negative social consequences, living in an economically deprived area may mean increased exposure to crime etc. According to research by the University of Manchester, “a fifth of its Black African, Black Caribbean, and Arab populations live in the country’s most deprived neighbourhoods compared to 8% of the white British population.” I will tackle “social mobility” in my next instalment, for now it is enough to know that many more black children than white children are living in poverty and therefore do not have access to opportunities taken for granted by middle class and more well off children. 7. Single parent home This data is a little old (from 2007) but is unlikely to have changed much so I will use it. According to a Metro article, “48% (almost half) of black Caribbean families have one parent, as do 36% (a third) of black African households.” This figure is 10% for Indians (and marginally higher for those of other South Asian background), 15% for the Chinese and 22% (a fifth) for whites. 90% of single-parent families are headed by mothers. Children who grow up without their biological father are more likely to be
I don’t want to stereotype the single parent with lots of dreary stats but suffice it to say having to manage as a single parent according to the data tends to exacerbate poverty – which stands to reason because one person equals fewer resources including services like washing, cooking etc rather than financial resources. It may also mean the child has less access to parental support for homework and possibly other emotional needs. In summary, before a black child is even a teenager they may face major challenges with their development because they are:
If ALL school teachers could treated ALL children like they are special and going places regardless of race so much progress could be made in erasing educational inequalities between the races. And over the long run, erasing wealth inequality. Heather p.s. subscribe to my podcast and ask me any money question, HERE - do it now! |
Heather on WealthI enjoy helping people think through their personal finances and blog about that here. Join my personal finance community at The Money Spot™. Categories
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