Personal finance queries

We answer your letters on everyday financial concerns

I am considering buying a second house for pounds 87,000 while waiting for my first house to sell at pounds 47,000. How would the purchase of the second house affect my taxes, especially capital gains tax? Can I get Miras for both properties if I put one in the name of my wife?

HE, Worcestershire

I think you are anticipating problems that may not arise. Miras is the tax relief paid direct to your lender. You are eligible for this relief on the interest on the first pounds 30,000 of a loan used to buy your main home, and it is worth 15 per cent of that interest.

From what you say, you should qualify for Miras on the interest on pounds 30,000 of a loan to buy your new home.

In addition, you can continue to get this tax relief for up to 12 months on the loan used to buy your current home. And if you are having difficulty selling the old home, you may be able to get tax relief on two properties for longer than 12 months. It does not matter which of the two houses you live in.

When it comes to capital gains tax, again there is unlikely to be a problem. As a general rule, when you sell your main home there is no capital gains tax to pay on any profit. But there can be a tax liability on second homes.

However, several rules enable you to live away from this main home without incurring a tax bill on any rise in value during those periods of absence. If you cannot move into your new home while you are waiting to sell the old one, there is no liability to tax for the first year of ownership (or for the first two years if there is a good reason why you cannot move in). And by another rule, there will be no tax on any rise in value during the last three years of ownership of the old home even if you do not live there.

Leaflet CGT4, available from tax offices, explains how capital gains tax might affect properties you own.

Is it worth making voluntary national insurance contributions to fill in gaps when no national insurance has been paid, such as periods at university? Or is it a waste of money in view of the dwindling value of the state pension? TH, Leicestershire

What are called voluntary class 3 contributions could improve your basic state pension, currently worth up to pounds 3,180. That is certainly not enough to live on, but it can make a useful contribution to overall retirement income and, at present, it has the key advantage that it is increased in line with inflation. Unfortunately, there is no way of knowing whether a future government would withdraw this pension or allow its true value to wither away.

To qualify for the basic pension, you need to have paid enough national insurance contributions of the right type - class 1 paid by employees, class 2 paid by the self-employed, or class 3 voluntary contributions.

Contributions covering nine-tenths of your "working life" give you the maximum pension. Then there is a sliding scale down to contributions covering less than a quarter of your working life, which entitle you to nothing. Your working life is, roughly, from the age of 16 to the state pension age of 65 (or, currently, 60 for women).

In some instances you get credits - for example if you are under 18 and still at school, or claiming unemployment benefit, job seeker's allowance, maternity benefit or incapacity benefit. You may qualify for "home responsibilities protection" because you look after children or an elderly relative, which has a similar effect to a credit.

But other gaps, covering university years or periods abroad, will not be covered.

The Benefits Agency (part of the Department of Social Security) can give you a state pensions forecast, showing what your state pension is expected to be at retirement given your contributions record and whether you can increase your pension by paying voluntary class 3 contributions. They can be paid for gaps going back six years and cost pounds 5.95 a week.

An independent financial adviser (IFA) may be able to provide figures showing whether investing an amount equivalent to voluntary national insurance contributions elsewhere is likely to provide a better income than the pension you can buy from the state.

The younger you are, the greater the chance of an investment being the better option. But the calculations on the best option inevitably involve guesswork, and increasing your state pension could be safer.

Someone suggested my father get a home income plan to increase his pension. Aren't these things dodgy? PT, Liverpool

Not necessarily. Some older home owners did get badly stung by dodgy plans sold in the 1980s on the back of booming stock markets. But there has always been a risk-free variety.

In this case an elderly home owner gets a mortgage at a fixed rate and buys a fixed-rate annuity - an annual income for life - with the released money or "equity". Part of the annuity pays for the mortgage, the rest is extra income.

For details, write to Safe Home Income Plans, 374-378 Ewell Road, Surbiton, Surrey KT6 7BB (0181-390 8166).

q Write to Steve Lodge, personal finance editor, Readers' Lives, Independent on Sunday, 1 Canada Square, Canary Wharf, London E14 5DL, and include a telephone number.

Do not enclose SAEs or documents that you wish to be returned. We cannot give personal replies and cannot guarantee to answer every letter sent to Readers' Lives. We accept no legal responsibility for advice.

Start your day with The Independent, sign up for daily news emails
ebooks
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
SPONSORED FEATURES
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

SThree: Experienced Recruitment Consultant

£20000 - £40000 per annum + OTE + Incentives + Benefits: SThree: Established f...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40/45k + INCENTIVES + BENEFITS: SThree: The su...

Recruitment Genius: Collections Agent

£14000 - £16000 per annum: Recruitment Genius: This company was established in...

SThree: Trainee Recruitment Consultant

£20000 - £25000 per annum + OTE 40k: SThree: SThree are a global FTSE 250 busi...

Day In a Page

Isis profits from destruction of antiquities by selling relics to dealers - and then blowing up the buildings they come from to conceal the evidence of looting

How Isis profits from destruction of antiquities

Robert Fisk on the terrorist group's manipulation of the market to increase the price of artefacts
Labour leadership: Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea

'If we lose touch we’ll end up with two decades of the Tories'

In an exclusive interview, Andy Burnham urges Jeremy Corbyn voters to think again in last-minute plea
Tunisia fears its Arab Spring could be reversed as the new regime becomes as intolerant of dissent as its predecessor

The Arab Spring reversed

Tunisian protesters fear that a new law will whitewash corrupt businessmen and officials, but they are finding that the new regime is becoming as intolerant of dissent as its predecessor
King Arthur: Legendary figure was real and lived most of his life in Strathclyde, academic claims

Academic claims King Arthur was real - and reveals where he lived

Dr Andrew Breeze says the legendary figure did exist – but was a general, not a king
Who is Oliver Bonas and how has he captured middle-class hearts?

Who is Oliver Bonas?

It's the first high-street store to pay its staff the living wage, and it saw out the recession in style
Earth has 'lost more than half its trees' since humans first started cutting them down

Axe-wielding Man fells half the world’s trees – leaving us just 422 each

However, the number of trees may be eight times higher than previously thought
60 years of Scalextric: Model cars are now stuffed with as much tech as real ones

60 years of Scalextric

Model cars are now stuffed with as much tech as real ones
Theme parks continue to draw in thrill-seekers despite the risks - so why are we so addicted?

Why are we addicted to theme parks?

Now that Banksy has unveiled his own dystopian version, Christopher Beanland considers the ups and downs of our endless quest for amusement
Tourism in Iran: The country will soon be opening up again after years of isolation

Iran is opening up again to tourists

After years of isolation, Iran is reopening its embassies abroad. Soon, there'll be the chance for the adventurous to holiday there
10 best PS4 games

10 best PS4 games

Can’t wait for the new round of blockbusters due out this autumn? We played through last year’s offering
Transfer window: Ten things we learnt

Ten things we learnt from the transfer window

Record-breaking spending shows FFP restraint no longer applies
Migrant crisis: UN official Philippe Douste-Blazy reveals the harrowing sights he encountered among refugees arriving on Lampedusa

‘Can we really just turn away?’

Dead bodies, men drowning, women miscarrying – a senior UN figure on the horrors he has witnessed among migrants arriving on Lampedusa, and urges politicians not to underestimate our caring nature
Nine of Syria and Iraq's 10 world heritage sites are in danger as Isis ravages centuries of history

Nine of Syria and Iraq's 10 world heritage sites are in danger...

... and not just because of Isis vandalism
Girl on a Plane: An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack

Girl on a Plane

An exclusive extract of the novelisation inspired by the 1970 Palestinian fighters hijack
Why Frederick Forsyth's spying days could spell disaster for today's journalists

Why Frederick Forsyth's spying days could spell disaster for today's journalists

The author of 'The Day of the Jackal' has revealed he spied for MI6 while a foreign correspondent