Personal finance queries
We answer your letters on everyday financial concerns
Sunday 18 August 1996
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.
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