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Message for TaxMan

 
#1 Message for TaxMan
11/06/2007 10:52

Mr S. Kint

Hiya TaxMan. Thank you for your posts in previous threads, I always enjoy reading them.

As you may be aware, I am absolutely broke. I would therefore be grateful for any thoughts you may have about my personal financial situation. Don't worry, I'm not after "advice" in the formal sense of the word, I would just like your opinion on what you would do if you were me.

Please let me know what information you need to help with this. As a starting point, some facts are set out below:

1. I am a self-employed member of a limited liability partnership, a small company which nobody on here will ever have heard of before

2. My earnings vary year-on-year but are around the £35K mark.

3. I own a flat in London with a £140K mortgage (with the best rate I can find)

4. I own a car (£500 Ford Mondeo) which is an absolute must-have for visiting family

5. I travel into London by train (zone 3)

6. I would love to move out of London and enjoy a country lifestyle, but the crippling costs of moving house combined with extortionate commuting costs from outside the M25 make this a no-go as far as I can tell

7. I could earn more if I got another job, but the lifestyle is very good where I currently am (good hours, minimal travel) and I fear 'risking it all' by moving into a new job with new responsibilities and new colleagues where let's face it there's a chance I may not fit in

8. I am very frugal with my spending. I take my own sandwiches to work, have the heating off during the winter, and generally count the pennies with everything I do. I'm even considering getting rid of the TV to save on the license fee.

9. The company I work for does not provide a pension or any kind of benefits. I am currently paying around £200/month into a stakeholder pension. Obviously I would prefer not to do this, but I do have to set aside something for when I reach retirement age.

Even with all these measures, I am only just about keeping my head above water.

What do you think my personal financial strategy should be, both for the short, medium and long term?

Thank you

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#2 RE: Message for TaxMan
11/06/2007 10:55

an extra 200 quid to Mr S. Kint (#1)

I know enough people who have retired to find that their pension fund had collapsed to know that the best pension fund you can have is the one you are living in

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#3 RE: Message for TaxMan
11/06/2007 11:05

Mr S. Kint to an extra 200 quid (#2)

Yes I did think about paying off the mortgage faster but surely the tax relief on the pension means that putting it into the pension should be more sensible in the long term? Also in a sort of psychological way somehow having the money 'ringfenced' as pension payments means that I can't spend it or become accustomed to a more expensive lifestyle than I can really afford? I am very undecided about the whole pension vs. paying off the mortgage sooner debate, logically I think that putting it into a pension should give a higher return in the long term (especially with tax relief) but like you say it does worrry me that this money is so inaccessible and I don't really trust the pension companies. What do you think about all of this on balance?

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#4 RE: Message for TaxMan
11/06/2007 11:51

live a little to Mr S. Kint (#3)

sounds to be like you are going to worry yourself into an early grave anyway so you do not need to worry about a pension fund

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#5 RE: Message for TaxMan
11/06/2007 11:56

Mr S. Kint to live a little (#4)

Yes sadly I am a great worrier, this is also something I also badly need to address. I get stressed very easily when it comes to risk and things like house prices, I just don't know how other people cope with the uncertainty and pressure of it all

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#6 RE: Message for TaxMan
11/06/2007 23:33

taxMan to Mr S. Kint (#1)

Your strategy should be to run to your tax office and ask for a tax rebate, or ask your partners which one is the stupid one.

My Answer:

Sir:

1. Your a partnership, all travelling outside of your office is therefore recouperable

See here: http://www.hmrc.gov.uk/rates/travel.htm

2. This is NOT taken as tax so can be cut off your 40% top line ie: Your stated earnings

3. Your flat is also where you work, at least 50% of it, 50% of that interest can be offset against your wage

4. Train travel to london should be taken from your wage

5. Heating and lighting is for business purposes well 50% of it (Winter I should assume)

6. ONLY put your higher tax amount into a pension, and you should also reduce your NI

Lets see....

1. You earn 35K

2. You travel 10'000 miles per year = £4'000

3. Your interest at BASE is 7.5% x 140'000 = £10'500 x 50% = £5250

4. Trains etc about £100

5. Your allowed £180 per year for 'company entertainment'

Now

You earn £35k

Less: £9530

Less £200 * 12 £2400

Therefore 35- 11'930 = £23070

This means your TAX you should pay is :

(may not format)

Wage Summary

Year Month Week

Gross Pay 23,070.00 1,922.50 443.65

Tax free Allowances 5,035.00 419.58 96.83

Total taxable 18,035.00 1,502.92 346.83

Tax paid 3,709.70 309.14 71.34

National Insurance 1,982.86 165.24 38.13

Total Deductions 5,692.56 474.38 109.47

2006 Net Wage £17,377.44 £1,448.12 £334.18

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#7 RE: Message for TaxMan
12/06/2007 11:21

Mr S. Kint to taxMan (#6)

Hi TaxMan, you rule. This is exactly the sort of advice I needed! However I should have added a few points to my original post:

1. The company pays for all my work related travel (it gets expensed to the client)

2. I've been told that somehow they are already making an income tax allowance of I think it's £500 for expenses when I'm working from home, they said it can't be more than this because it's the maximum allowed??

3. The point about pensions is a great one and I'm going to take this up immediately!!

4. I did want to take into account a share of the mortgage interest repayment but was then told that I'd effectively be changing the use of the property and would have to pay capital gains tax on part of it if/when I eventually sell??

Pls let me know if you need any more info... half my problem is I don't know what info may be relevant and what's not!!

Thank you again TaxMan

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#8 RE: Message for TaxMan
12/06/2007 20:42

Taxman to Mr S. Kint (#7)

Hmm, I think you will find your entitled to 40p per mile irrespective of what the client is billed. As the company pays you mileage and if its not 40p per mile tax free then you can claim the DIFFERENCE from the IR.

£500 working from home is the maximum ? Really ask why? Is your internet/phone/electricity/stationary etc £500 and if so your employer may note that its cheaper NOT to have office based workers.

You pay CGT on the sale of your property if it is a business, or you rent it out for more than 3 years on sale of the property.

Another tip....

http://www.propertysnake.co.uk/

Is your area falling like SW1?

Then your property investment is negative, or stagnant

Remortgage at 4% and stick in a high interest account at say 8%. End of year you have about 3% (less tax) which your property has or would not earn.

Again the market is about to correct due to 'Carry Trades'. SW1 is already under big pressure.

City boys driving the market up.....

Sheep :)

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