What has happened over the last few weeks in personal finance? (26/08/2020)

Category: News

Eviction day looms

Government restrictions on tenant evictions by landlords are to be lifted on 23rd August. But experts say there is unlikely to be an immediate spike in evictions.

The government introduced its moratorium on tenant evictions in March and extended it further in June. The moratorium expires on 23rd August, although we should not rule out a further extension.

Landlords are bound by strict rules designed to slow the eviction process down. Landlords that started eviction proceedings before the 3rd of August must now serve what is called a ‘reactivation notice’. If they do not, any claim will not be relisted by the courts or heard by a judge. And even when a notice is served, in fault-based evictions courts give more time between the claim and hearing. This is usually eight weeks but given the backlog of cases, it is likely to be significantly longer.

Eviction claims starting now force landlords to enter into what is called a ‘pre-action protocol’. This compels landlords to attempt to agree on a resolution with their tenants before issuing a possession claim.

Landlords will also need to inform the courts on what impact the coronavirus pandemic has had on a tenant. This may have an impact on how much time a tenant is given by the court to vacate a property.

What this means for landlords, what information is needed and what happens if it is not provided is unclear. This could leave eviction claims stuck in the courts for many months to come, leaving landlords in limbo.

The end of the Bank of Mum & Dad?

Lenders are introducing new rules meaning some first-time buyers cannot rely on their parents for their deposit. This applies to borrowers looking to get a mortgage to cover 90% of the cost of their home. It states they must prove that no more than a quarter of their deposit was gifted to them. The rule does not apply to customers looking for deals at 85% loan-to-value or lower.

Around 40% of first-time buyers thought to have received financial help from family members last year. This change could, therefore, affect significant numbers of potential homeowners.

Lenders have not commented on the reasons behind the rule. It does come as economic uncertainty has cast doubt on the future of Britain’s housing market. Several lenders removed their highest loan-to-value deals after the pandemic hit. This was amid fears that property prices could fall, pushing many homeowners into negative equity. Nationwide tripled the minimum deposit it required from borrowers from 5% to 15%. They then reduced it to 10% when the government announced last month that stamp duty would be suspended.

Checking buyers have saved money themselves, is one way for banks may feel they can reduce bad debts. While commercial organisations can set their own terms of business some believe Nationwide should justify why they are doing this. It undermines most people’s understanding that they can and should be able to help their kids buy their first home.

No Inheritance tax on pensions

The Supreme Court has ruled there should be no inheritance tax charge on a transfer to an individual’s pension.

The case was brought to the Supreme Court. The defendant is the estate of Mrs Rachel Staveley. Before she died in 2006, she transferred her pension from a company pension fund to an AXA personal pension. If she had remained in the company scheme, her pension would have been exempt from inheritance tax (IHT). However, transferring it to a personal pension plan meant it was subject to the government tax.

The court found this transfer aimed to avoid any pension funds reverting to the business. This would have provided these funds for her divorced husband, who is a partner at the business they both founded. Because Staveley was terminally ill with cancer, HMRC treated her actions as a transfer of value. They also treated it as an omission to act as she did not draw any benefits during her lifetime. Therefore, it was concluded this transfer was not intended to reward these funds to her sons, the beneficiaries primarily. Instead, it was concluded that the aim was to avoid these funds going into the business’ hands.

Despite this, the court found deferring taking pension income during Mrs Staveley’s lifetime increased the value of the funds. HMRC appealed this, and the appeal was allowed.

The Supreme Court decision clarified intention is crucial when a pension transfer or switch is made in terminal ill health.

Where a transfer increases death benefits, such as a DB to DC transfer, it will be subject to IHT. A discretionary DC to DC switch should be completed without the worry of IHT. As always, financial advice is key.

Property boom and bust on the cards?

The housing market in Wales and England could be heading for a boom followed by a bust. This is according to feedback gathered by surveyors. The Royal Institution of Chartered Surveyors (RICS) said anecdotal evidence suggests the temporary stamp duty holiday introduced from July 8 in England and Wales is playing a significant role in lifting demand.

The stamp duty threshold for homes has been temporarily raised to £500,000, saving some buyers as much as £15,000. However, it will go back to £125,000 in April 2021.

RICS’ July survey of property professionals found the recent impetus seen in the housing market is not expected to continue. This is as wider government support measures are gradually phased out later in the year. It said some contributors are “even referencing the possibility of a boom followed by a bust”.

RICS chief economist Simon Rubinsohn said: “It is interesting that there remains rather more caution about the medium-term outlook, with the macro environment, job losses and the ending or tapering of government support measures for the sector expected to take their toll”.

A separate report from Halifax last week found average UK house prices hit a new record high of £241,604 in July.

RICS’ survey found house prices lifted in July in most parts of the UK. London was the exception as values there were reported as continuing to fall. It also said an overall net balance of 75% of professionals noticed an increase rather than a decrease in the number of homebuyers during the month.

It marked the second month in a row of buyer demand rebounding firmly. This is after the housing market was put on pause earlier this year as part of measures to limit the spread of coronavirus.

Looking ahead, surveyors expect sales to continue to pick up over the next three months. But in a year, surveyors foresee sales tailing off, the report said. This is amid concerns about the prospects for the UK economy and the impact this will have on employment as the furlough scheme expires.

HMRC homes in on tax evasion

The amount of extra tax collected by HMRC through agreements with tax evaders increased 25% in the year to 31 March 2020 to £119.4 million. This was up from £95.8m in 2018/19, according to figures obtained by Pinsent Masons.

If HMRC suspects someone of evading tax they can offer the opportunity to enter into a contract under the Contractual Disclosure Facility (CDF). Alternatively, a taxpayer who wants to admit tax evasion which HMRC has not discovered can apply to HMRC to make a voluntary disclosure using the CDF.

The CDF gives the taxpayer immunity from criminal investigation. This is in return for making a full, complete, and accurate admission of tax evasion and paying back any money owed. A wide range of taxpayers can use these agreements. Ultra-high net worth individuals with complex offshore tax affairs through to people on average incomes who owe small amounts of tax.

Using the CDF has benefits to both sides. Taxpayers avoid prosecution and HMRC saves time and money. If a taxpayer makes a full disclosure, then they will also face significantly lower penalties than if they waited to get caught. Taxpayers may also avoid being publicly ‘named and shamed’ as a tax evader.

HMRC investigations are expected to pick up as the UK government seeks more tax revenue. HMRC receives information automatically under the Common Reporting Standard about financial accounts held by UK residents in more than 100 jurisdictions. As HMRC gathers more UK and overseas data on suspected tax evaders the net is being tightened. The CDF is a route out that can avoid a possible prison sentence.

The end of peer-to-peer lending?

Last December new rules came in designed to better protect casual investors in peer to peer lending. The boss of lending platform RateSetter described this as ‘a Darwinian process… that will lead to a stronger industry’.

Eight months later RateSetter, one of the ‘big three’ in peer-to-peer investing, has been snapped up by Metro Bank. They are one of the high street lenders P2P platforms were launched to take on. In addition, they announced they would close their doors to everyday personal investors.

The world of casual peer-to-peer investing appears to have shrunk since those new rules were introduced late last year. While a bank has bought RateSetter, Zopa, the UK’s first peer-to-peer platform, secured the license to become one. Publicly listed business lender Funding Circle has also temporarily closed the doors to everyday investors.  It is instead helping hand out Government-Backed loans, having facilitated 16 per cent of all coronavirus business interruption loans.

There is the question of whether casual peer-to-peer investing is an endangered species, or even already extinct. Big platforms have dealt with higher default rates, even before the coronavirus crisis. They have struggled to hand anxious investors back their money.

The collapse of the platform Lendy has also cast a shadow over an industry sometimes seen as the Wild West of investing. This is even if last year’s regulations tightened things up.

Transfer scam victims treated unfairly says Which?

Many victims of bank transfer scams are being treated unfairly and the chances of them getting their money back is often a lottery. This is according to Which?. They are is pressing for the voluntary code supposed to protect consumers to be made mandatory.

They have said the number of people being reimbursed by their bank was “woefully low”. Fraud in the UK payments industry has soared in recent years. There has been a sharp rise in authorised push payment (APP) scams. This is where email accounts are hacked to trick people into sending money to bank accounts operated by criminals. Many people have had large sums stolen.

In July, the Guardian featured the case of a woman who lost more than £300,000, though she eventually received all her money back. Most of the big high street banks signed up to a voluntary code in May 2019. This requires them to reimburse customers who fall victim to APP scams. Only those who, for example, were “grossly negligent” or ignored warnings would lose their money, consumers were promised. Which? says, however, many people have been being treated unfairly or inconsistently when trying to recover their cash.

It said its investigation had found some banks were “regularly blaming customers for missing warnings or not doing enough to realise they were being scammed”. Which? said its analysis had found four of the eight banks signed up to the code had fully reimbursed victims in 6% or fewer of cases. IN once case a bank had only fully refunding 1% of victims. Another had given 59% of victims all their money back.

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