Frequently Asked Questions

We've put together some of out most frequently asked questions and answers to provide you more information about Everystep Financial and the services we offer.

If you have a question about that's not listed please contact us for more information.

• The new tax regime on Buy to Let properties

  Property investment has always been a strong winner over the longer-term with many people happy to see their money invested in bricks and mortar. The ability to put in a deposit and get capital appreciation over the longer-term on the whole property asset, has allowed great wealth accumulation for many investors over the years.

  It is worth noting that the changes only currently affect residential property held in your personal name. If you hold your property in a limited company, then there are no changes to the current tax regime. You can also continue to offset the mortgage interest on commercial properties and furnished holiday lets.

  Please see below some examples of the old regime vs the new regime.

  Example 1: Basic Rate tax payer

  Old Way

  Employed Income

  20000

  Property profit net of running costs

  20000

  Property Mortgage Interest

  15000

  Total Property Profit

  5000

  Total Income

  25000

  Tax

  2500

   

  ---

  Total Tax

  2500

  New Way post 6/4/2020

  Employed Income

  20000

  Property profit net of running costs

  20000

  Property Mortgage Interest – non allowable expense

  15000

  Total Property Profit

  20000

  Total Income

  40000

  Tax

  5500

  New Tax Credit 20% of mortgage interest

  3000

  ---

  Total Tax

  2500

  Example 2: Basic Rate being pushed into Higher Rate

  Old Way

  Employed Income

  40000

  Property profit net of running costs

  20000

  Property Mortgage Interest

  15000

  Total Property Profit

  5000

  Total Income

  45000

  Tax

  6500

   

  ---

  Total Tax

  6500

  New Way post 6/4/2020

  Employed Income

  40000

  Property profit net of running costs

  20000

  Property Mortgage Interest – non allowable expense

  15000

  Total Property Profit

  20000

  Total Income

  60000

  Tax

  11500

  New Tax Credit 20% of mortgage interest

  3000

  ---

  Total Tax

  8500

  Example 3 – Higher Rate

  Old Way

  Employed Income

  85000

  Property profit net of running costs

  20000

  Property Mortgage Interest

  15000

  Total Property Profit

  5000

  Total Income

  90000

  Tax

  23500

   

  ---

  Total Tax

  23500

  New Way post 6/4/2020

  Employed Income

  85000

  Property profit net of running costs

  20000

  Property Mortgage Interest – non allowable expense

  15000

  Total Property Profit

  20000

  Total Income

  105000

  Tax

  29500

  New Tax Credit 20% of mortgage interest

  3000

  ---

  Total Tax

  26500

   

  Please see below some key points that highlight the fundamental changes that will affect landlords.

  • You will now get a tax credit of 20% on all finance costs including mortgage interest associated with the residential property you let out.
  • As the finance costs are not treated as an expense, it can have the disadvantage of dramatically increasing your income and pushing you into higher tax brackets. There is also a risk you could lose, or have your personal allowance reduced if your total income exceeds £100,000.
  • If, after you factor in your property income, you are still a basic rate taxpayer there are no changes in the tax liability under the new regime.
  • As soon as you start paying higher rate tax you have a higher tax liability than before the changes were implemented.
  • Although the tax implications will be higher, this does not rule out property as a sound longer-term investment. Let’s assume you owned two properties worth £200,000 creating a rental income of £20,000 per year after allowable expenses. As illustrated above, this would incur an additional £2,000 tax liability in the new regime if you had a salary of £40,000.  It is worth noting however, you are still making £2000 profit after a year after tax.  You also need to factor in the potential capital appreciation, at 5% this would equate to £20,000.  There would however, potentially be a capital gains tax liability if you ever sold the property.

  Incorporating a company to buy property (SPV)

  Due to the new way individuals are taxed, purchasing property within a company is now a key consideration.  The Lenders refer to these companies as special purchase vehicles (SPVs).  Please see below some advantages and disadvantages for your reference.

  Advantages:

  • You will pay corporation tax on profits and capital gains.
  • You can still fully offset finance costs including residential mortgage interest as an expense.
  • You can control when and how you take the rental income generated. This means you can defer drawing income until your income reduces, for example, in retirement.
  • You can add additional shareholders such as your spouse and children to get the income out of the company in the most tax efficient manner.
  • You can succession plan for future generations in terms of passing on shares in the company over time to allow you to undertake Estate planning in a tax efficient way.
  • You can often leverage more against the property income if you plan to raise additional funds for further investment and growth.
  • If you decided to sell the property held within a company in the future, the profit achieved would be subject to Corporation Tax.

  Disadvantages:

  • You will still pay personal tax when you draw funds from the company at your marginal rate.
  • You will incur additional accountancy fees and you will need to submit a company’s house return annually.
  • You would lose your ability to offset the personal £12,000 capital gains allowance on the sale of the property.

  Please be aware that if you are thinking of transferring property that you own personally onto a limited company then you should seek advice on this first.  It’s not as straight forward as simply transferring the property into a limited company and could have Capital gains tax and stamp duty implications.

  Note

  The new regime that is affecting mortgage interest also affects other finance costs which includes costs such as fees incurred when taking out or repaying mortgages or loans used to fund the property, valuation fees, legal fees for drafting loan agreements etc.

• How do I prepare for my Will appointment?

  We work with AdviserWill in order to ensure our clients have considered and understand their estate planning needs.

  AdviserWill in partnership with Trust Inheritance provide an extensive range of Will Writing and Estate Planning services.
  Here are some of the benefits of working with AdviserWill and Trust Inheritance:

  • Wills, Trusts & LPA’s can be instructed online, over the phone, or face to face.
  • Access to a new Probate service with the support of an online Executor Toolkit with services ranging from a little help, to handing it all over to a specialist.
  • A skilled team consisting of Solicitors, Paralegals and Customer Care support with the capacity to get back to you the same working day.
  • A simple online form for you to undertake an online application.
  • Dedicated AdviserWill team to answer any questions and resolve any issues quickly and efficiently.

  To help prepare for your first meeting, you should have an understanding of your current financial position and estate planning objectives. Your Will Writer will work with you to help you identify and prioritise these, make a planand assist you in presenting this within a legal document (Wills, Trusts and Lasting Power of Attorneys).

  You may find our Help Sheet useful, which explains some of the jargon and will assist you in completing the Client Key People Data Capture Form. We also have a range of brochures and support material in addition to useful video’s on our website for your guidance.

   

   

  Tips for planning your Will

  • Make a list of who you want to benefit from your estate
  • Don’t forget to include guardians to care for your children if they are under the age of 18
  • Think about extended family and friends
  • Think about charities
  • Consider what percentage of your estate you would like each person or group to inherit
  • Note any particular items such as jewellery or art, you’d like to leave to specific people
  • Note those you want to exclude from your Will(anyone you specifically don’t want to benefit from your estate)
  • Make a list of the names and addresses of your beneficiaries, trustees and guardians to give to your executors and trustees
  • Choose people whom you know well and trust, such as family members, friends or perhaps a professional person, to act as your executors and trustees (remember that a professional may charge for this service)
  • EveryStep Financial can offer a fully insured Will storage service where your Will is stored in our water and fire proof safe. We will send you and each of the executors a Will storage certificate so that your Will can be accessed easily when required

   

  After you have completed your Wills, your Will writer will contact the key people within your Will to ensure they understand their roles and obligations and provide them with our contact details.

• How do I improve my credit score?

  Improving my credit score

  The higher your score, the more likely you are to be approved and be eligible for the best deals when applying for a mortgage or credit agreement. You can improve your score by taking the following steps:

  • Check your credit file frequently with one of the three approved companies, Experian, Equifax and Call Credit
  • Reduce your debts
  • Register on the Electoral Roll
  • Make any regular monthly payments on time and in full (setting up direct debits for minimum payments is a great way to ensure payments are not missed)
  • Avoid making lots of credit applications in a short space of time
• What is a credit check and do credit searches or ‘footprints’ on my credit file affect my ability to obtain credit?

  A credit check is a snapshot of all of your current and previous credit agreements, it details your payment history, missed or late payments, defaults and CCJ’s, it also holds details of any individual voluntary arrangements or bankruptcies for at least 6 years.

  Every time a lender or credit company searches your file, it leaves a mark on your report (known as a ‘footprint’). If you have too many credit searches in a short space of time, this could be flagged up to lenders (depending on the type of credit applied for) and can have a negative effect on your ability to obtain credit with them, as well as potentially lowering your credit score.

• Can I take on any new credit agreements before applying for a mortgage?

  Any new application for credit can affect your credit file negatively. We strongly recommend you don’t apply for new credit shortly before applying for a mortgage or at any time during the mortgage process. New credit agreements and searches can hinder your credit score as every search is registered on your credit file. Too many searches in a short space of time can be viewed as “desperately seeking borrowing”. This can potentially reduce your mortgage options and, in some cases, cause an agreement to lend or a mortgage application to decline.

• How much can I borrow?

  This depends on the lender, but it’s typically 4-5.5 times your annual salary. We have a simple to use affordability calculator, which can help you determine what you can afford, but ultimately every lender is different which means it is best to let your adviser research this for you after your free initial appointment.

• What is the minimum deposit I will need?

  The minimum deposit can be as small as 5% however, all lenders will have different criteria. Your adviser will discuss this with you at your appointment so that we can place your mortgage with a lender that will give you the best rate for the deposit amount that you have available.

• Agreement in Principle (Agreement to Lend) – Why do I need one?

  An AIP (agreement in principle) will allow you to make an offer on a property with confidence that the mortgage is likely to be agreed subject to a full application. This shows developers, estate agents and vendors that you are a serious buyer.

  Your chosen lender will carry out a credit search to assess your affordability based on the
  information you provide to them about your current financial situation, income and the information found on your credit file.

  Your lender will then supply us with an agreement in principle certificate with confirmation of how much they are willing to lend you.

  Should any of the following details change after the agreement in principle is offered, they may not be able to lend you what was originally agreed in your AIP:

  • Negative changes to your credit file
  • A reduction in your income or ability to provide sufficient proof of income
  • Other changes in your circumstances that could affect your ability to re-pay the loan amount
• Offset Mortgages

  An Offset mortgage allows you to ‘offset’ your savings balance against your mortgage. You only pay interest on the difference between your mortgage and savings balance, giving you the potential to dramatically reduce the interest you pay on your mortgage.

  Offset mortgages can be used to either reduce your monthly mortgage payments or more commonly, to reduce the term of the mortgage loan.

  Option 1- Reduced Monthly Payment

  The term of your mortgage remains the same but your monthly mortgage payment is reduced. The interest you earn each month from the savings in your account is used to reduce the amount of mortgage interest you pay the following month, therefore reducing the monthly mortgage payment. This option allows for more disposable income each month and could save thousands of pounds of interest during the mortgage term.

  Option 2 – Reduced Term                                               

  Your monthly mortgage repayments stay the same each month but the amount of mortgage interest you need to pay is lower due to your savings balance being offset against it. More of your monthly mortgage payment is used to repay the balance of the mortgage which effectively means you are overpaying your mortgage each month, allowing you the potential to knock years off your mortgage term, save thousands of pounds in interest and potentially repay your mortgage sooner.

  Here’s an example: Let’s say your client has a mortgage balance of £100,000 and an Offset savings balance of £20,000. The lender will use their £20,000 Offset savings, and only charge them mortgage interest on £80,000. So, the more they save, the less mortgage interest they pay.

  

  In addition to the above, an offset mortgage offers the ease of having one linked account and instant access to your savings at any time should you need them.

  You will not gain any interest on monies held in the offset savings account.

• Stamp Duty

  Stamp Duty (SDLT) is a lump sum tax, payable when you purchase a property or land costing over a set amount. The rate of stamp duty differs across the UK, with England, Wales and Northern Ireland charging the same rate. Stamp duty in Scotland is known as ‘Land and Buildings Transaction Tax’ and is charged at a different rate to the rest of the UK.

  The higher the price of the property you are purchasing, the higher the stamp duty charge.

  Stamp Duty uses a tiered structure, this means the same level of tax is not applied to the total property price. Instead, You’ll pay tax on each portion of the property price that falls into the different stamp duty bands.

  Please see the chart below, which shows the current rates:

  What stamp duty will I pay?

  Purchase Price	SDLT on Regular Purchase	SDLT for Additional Properties
  Upto £250,000	0%	3%
  £250,001 to £925,00	5%	8%
  £925,001 to £1,500,000	10%	13%
  £1,500,000+	12%	15%

   
  If you are a first time buyer you will pay reduced rates of SDLT as detailed below. (This only applies where the purchase price is less than £625,000)

  Purchase Price	First Time Buyer SDLT
  Upto £425,000	0%
  £425,001 to £625,000	5%
  Above £625,000	All SDLT will be calculated using the standard bands.

   

  Your solicitor will advise of the stamp duty costs and arrange the payment of this tax for you during the legal process.

  Major stamp duty changes have taken place recently and we saw the introduction of the “additional properties stamp duty charge”. Essentially, anyone purchasing a property whom will own an extra property after completion of the new purchase will pay the higher rate. An example of this is perhaps the purchase of an investment property or if you purchase a new residential property but decide to keep your existing home as a rental property.

  Please see the diagram below which helps explain this:

  

  Please see our stamp duty calculator, which will help you work out your stamp duty land tax charge.

• Credit Scoring

  Credit scoring is an essential part of the mortgage application process; the lenders ability to lend will often come down to the information held on your credit file. All lenders run credit checks for mortgage applications without exception.

  From time to time, the lender or we may request a copy of your credit report for review. This will allow us to see if you have had any missed payments, CCJ’s, Defaults or Bankruptcy’s, as well as the balances of your credit arrangements.

  Checking your report can help foresee any potential issues before applying for a mortgage. It also allows you to keep an eye on your credit score if you have had past credit problems and want to improve your score.

  From experience the quickest and simplest way to get a credit report is from Check my File.  This provides a Multi-Agency Credit Report Monitoring for 30 days FREE, however there is then a £14.99 monthly fee. You can cancel online at anytime.

  Please don’t hesitate to contact us if you have any questions or require help obtaining your report.

• You work for yourself?

  Every mortgage applicant needs to prove their income to satisfy the lenders requirements. This process can be more challenging if you are self-employed, as certain information will need to be obtained from HMRC or your accountant.Sole Traders and Partnerships

  • We will require a copy of your latest 2 years SA302’s from HMRC or your Personal Tax Computation. A Personal Tax computation is accepted by most mortgage lenders, it is a similar document to an SA302 but is prepared by your accountant. This is often quicker than waiting for HMRC to send SA302’s as they can take several weeks to post out
  • The lender will also require your Tax Year Overview document for the last 2 years. This can also be supplied by HMRC or your accountant.

  Do you do your own self Assessment?

  If you have an online HMRC account, you will be able to download the relevant documents yourself, please see instructions of how to do this below:

  Printing your Tax Calculation (SA302) and tax year overviews

  You can currently view and print up to 4 years Tax Calculations.

  1. Log in to your HMRC online account.
  2. Go to ‘Self Assessment’, then ‘More Self Assessment details’.

  Limited Company Director/Shareholder above 20%

  If you are a limited company director or a shareholder in a company holding a share above 20%, we will still require the same as Sole Traders and Partnerships

  We will require a copy of your latest 2 years signed company accounts. This will allow us to explore lenders that use company net profits instead of the income declared on your personal returns, which may at times allow you to borrow more. It will also allow us to see if the business is running well to ensure the long-term affordability of the mortgage loan.[/vc_column_text][vc_column_text]Do you do your own self Assessment?

  If you have an online HMRC account, you will be able to download the relevant documents yourself, please see instructions of how to do this below:

  Printing your Tax Calculation (SA302)

  You can currently view and print up to 4 years Tax Calculations.

  1. Log in to your online account.
  2. Follow the link ‘tax return options’.
  3. Choose the year from the drop down menu and click the ‘Go’ button.
  4. Select the ‘view return’ button.
  5. Follow the link ‘view calculation’ from the left hand navigation menu.
  6. Follow the link ‘view and print your calculation’ at the bottom of the page.
  7. Follow the link ‘print your full calculation’

  Printing your Tax Year Overview

  1. Log in to your online account.
  2. Follow the link ‘view account’.
  3. Follow the link ‘tax years’ from the left hand navigation menu.
  4. Choose the year from the drop down menu and click the ‘Go’ button.
  5. Follow the link ‘print your Tax Year Overview’.

  Limited Company Director/Shareholder above 20%

  If you are a limited company director or a shareholder in a company holding a share above 20%, we will still require the same as Sole Traders and Partnerships

  We will require a copy of your latest 2 years signed company accounts. This will allow us to explore lenders that use company net profits instead of the income declared on your personal returns, which may at times allow you to borrow more. It will also allow us to see if the business is running well to ensure the long-term affordability of the mortgage loan.

• Valuation Options on application

  The Lender will need to obtain a valuation of the property to be mortgaged, which will be carried out by a valuer instructed by them. A Mortgage Valuation Report is a limited report intended for the lenders purposes only. Should you require a more detailed assessment of the property for your own purposes, you may wish to consider a ‘Home Buyer Report’ or ‘Building Survey’ report be undertaken.

  1. Mortgage Valuation Report:
     This is a limited report and is not a survey of the property. It is prepared solely for the lenders purposes and as such should not be relied on by you as a report on the property’s condition.
  2. Home Buyers Report:
     This is a more detailed report on the general state of repair and condition of the property, produced in a format approved by the RICS. It is produced on your behalf by a chartered surveyor to identify significant defects, repairs and features which affect the property. If you choose this option, we may be able to arrange for it to be carried out at the same time as the Mortgage Valuation report. (Please note that a direct contractual relationship exists between yourself and the valuer with this type of survey. You will need to confirm that you accept the standard Conditions of Engagement by signing an acceptance form and returning it to the independent firm of valuers).
  3. Building Survey:
     This is a highly detailed survey report giving a comprehensive review of the property’s condition. Although we may be able to arrange for it to be carried out at the same time as the Mortgage Valuation report, your contract will be directly with the valuer for the Building Survey and you will need to pay them directly for this. (Please note that a direct contractual relationship exists between yourself and the valuer with this type of survey. You will need to confirm that you accept the standard Conditions of Engagement by signing an acceptance form and returning it to the independent firm of valuers)
• Conveyancing

  10 Steps to Conveyancing

  Conveyancing is the legal process of transferring
  property from one owner to another.

  1

  CHOOSE YOUR SOLICITOR

  You choose and instruct your preferred Solicitor. If your mortgage has ‘Free Legals’ then your lender will choose and
  instruct your nominated Solicitor.

  2

  SOLICITOR’S CLIENT CARE PACK

  You complete and return the client care documentation sent by the Solicitor and pay the agreed fees.

  3

  CONTRACT REQUESTED

  Your Solicitor requests a contract pack from the seller’s Solicitor and raises the appropriate enquiries.

  4

  SEARCHES ORDERED

  Your Solicitor orders searches on the chosen property (Local Authority, Water and Drainage, Environmental, etc.).

  5

  MORTGAGE OFFER RECEIVED

  Once you have received a mortgage offer from your Lender, make sure your Solicitor has a copy.

  6

  SEARCHES & REPLIES RECEIVED

  Once enquiries have been replied to and your Solicitor is satisfied, you will be asked to check and sign some key documents
  such as Transfer deed, Mortgage deed, completion statement, report on title and the contract itself.

  7

  DEPOSIT REQUIRED

  Your Solicitor will discuss with you the deposit that is required and when and how it should be paid.

  8

  CONTRACTS EXCHANGED

  All parties agree on a completion date and contracts are formally exchanged.

  9

  COMPLETION

  Your Solicitor requests the mortgage funds from your Lender and prepares a completion statement. Once the funds are
  received, your Solicitor sends these to the seller’s Solicitor. The keys can now be released to you.

  10

  STAMP DUTY

  Your Solicitor arranges for your Stamp Duty Land Tax (SDLT) to be paid to the UK Government.
• How do I prepare for my appointment?

  To help prepare for your first meeting, you should have a understanding of your current financial picture and financial goals.  Your adviser will work with you to help you identify and prioritise your financial goals and set a plan to help you achieve these.  Your first appointment will allow us to get a full picture of your financial position.

  Could you please have the following information to hand during your first appointment.

  • Last 3 month’s Payslips if employed
  • Last 2 years Accounts if self employed or a limited company
  • Information on all current mortgages (amount outstanding, monthly repayment, lender, interest rate and early repayment charges)
  • Information on all current loans and credit cards (amount outstanding, monthly repayment, lender and interest rate)
  • 5 years address history
  • Information on all savings, pensions and Investments
  • Information on current insurance contracts and employer benefits such as sick pay and death in service.
  • Summary of monthly expenditure

   

  Documents to bring to your appointment

  • Driving Licence or Passport for verification purposes
  • Address proof (utility bill or bank statement dated within the last 3 months)

   

  In addition, where possible we would ask that you obtain a copy of your credit report. We have found check my file to be the best as this provides a multi agency credit report. The provider offers a free 30 day trial of which can be cancelled at anytime, if not cancelled this will cost £14.99 a month. By having the report it will allow us to understand any past credit issues, analyse data that may affect your mortgage eligibility ie high credit card utilisation, ensure debt balances are correct and check for any errors on the report which may impact an application.

  Once your adviser has gathered all of the relevant information, they will then arrange a second appointment with you. At your second appointment the adviser will present you with suitable recommendations and discuss the options available in detail.