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New tax rules introduced in April have shaken-up the savings market.
In the March 2015 Budget, Chancellor George Osborne first announced the Personal Savings Allowance, withpound;1,000 tax-free interest availablefor savers.
This applies to both savings and current accounts, but there is confusion when it comes to other products offering rewards such as cashback.What comes under the Personal Savings Allowance?
Since April 2016, basic rate taxpayers have been allowed to earn up to pound;1,000 in savings income tax-free, while higher-rate taxpayers get a pound;500 allowance.This is all on top of the annual ISAallowance.
But HMRC says not all payments made by banks and building societies are savings income, so would not necessarily fall under the Personal Savings Allowance.
According to HMRC guidance, if you receive annual payments that are non-interest then the basic rate tax will be deducted at source.If an individual is not liable to tax they can reclaim any tax deducted by completing an R40 form or on their self-assessment tax return.
If you are a higher-rate taxpayer you would need to pay the extra amount through your tax return.
An HMRC spokesman said: In general HMRC would only expect the payments to be annual payments if they can continue for more than a year and the customer does not pay a fee for holding the account.
This means that one-off payments or monthly payments that last less than a year are not annual payments.Because annual payments are not covered by the PSA, banks and building societies will continue to pay them with basic tax deducted.
But even if your rewards are not annual, you could still be taxed if you get monthly cash rewards as these may fall under the HMRC definition of lsquo;miscellaneous payments.
This creates more admin - and confusion - as miscellaneous payments dont have tax deducted, so basic and higher rate taxpayers would have to disclose this on a self-assessment form.
So which products are really tax-free?
[Related story:Overdrafts should be capped to encourage current account switching according to CMA]Savings accounts
Lets start with a relatively straightfoward one. All savings interest up to pound;1,000 for basic rate taxpayers and pound;500 on the higher rate falls under the PSA. Anyone earning above the threshold would need to complete a self-assessment.Current accounts
Any interest you earn on current accounts would come under the PSA.
So for example you could open TSBs Classic Plus Account paying 5% on balances up to pound;2,000, or a Santander 123 CurrentAccount and get up to 3% on balances between pound;3,000 and pound;20,000 tax-free as long as your income from all bank accounts is below the Personal Savings Allowance.
Additionally, several current account providers offer cashback incentivesfor switchers. This is considered a discount so wouldnt be taxed, according to Moneyfacts.
It gets confusing when a current account makes regular cash payments as these can be treated as annual or miscellaneous payments, so they would be subject to tax. For example, Halifax offers a well-publicised pound;5 reward on its Reward Current Account for each month you have two direct debits set up and pay in a minimum of pound;750 or more.
The reward is actually worth pound;6.25 a month, its just that the taxman has already taken a 20% cut before it arrives in your account.
Barclays does the same on its Blue Rewards Current Account.Customers can receive certain monthly monetary awards such as pound;7 for banking regularly and up to pound;3 a month for taking out its own protection products.
But the pound;7 is paid with income tax sliced off, meaning you only actually get pound;5.60 a month.Strangely, the other rewards are not subject to income tax.
Ultimately you will need to check the terms and conditions of the current account, just to be 100% sure.
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Panic buying of basic commodities has hit Harare as authorities mull introducing bond notes in October, widely opposed by most Zimbabweans, who lost personal savings when the country dumped the local dollar in 2009.
At the same time, long bank queues have become the order of the day as panic withdrawal of cash continues.
It's do-or-die for the Warriors at the National Sports Stadium Sunday. Reporter Michael Kariati gives us the story.
And this evening we are featuring musician Cynthia Mare.
Stay tuned for these stories and more coming up on Studio 7 at 7:30 pm on 9-0-9 Medium Wave and on the 4-9-3-0, 5-9-4-0 and 1-5-4-6-0 shortwave frequencies. We also broadcast on www.channelzim.net. Please check us out on Facebook, WhatsApp and Twitter.
This evening on Livetalk our hosts Gibbs Dube and Blessing Zulu will be talking with listeners about panic buying of goods in Zimbabwe as the country prepares to introduce bond notes. Some Zimbabweans argue that the bond notes are an attempt by the government to bring back the dumped Zimbabwe dollar.
Participate by sending your messages on our WhatsApp number 001 202 465 0318. You can also post comments on this Facebook wall or send us your number so we can call you back. Please note that we are livestreaming on all Studio 7 Facebook pages.
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If you're self-employed, you probably work hard for your money.
You shouldn't have to work harder to obtain a mortgage loan.
Yet, research shows that it can often be more challenging for an unprepared self-employed borrower to secure preferred home financing.
Self-employed borrowers are given 40 percent fewer purchase loan quotes than non-self-employed borrowers, based on a report by Zillow.
But these applicants report 81 percent higher household incomes and put down larger downpayments than their employee counterparts, per the same report.
If you work for yourself, theres no reason to delay your homeownership goals.
Self-employed borrowers with their financials and paperwork in order can obtain enviable mortgage loans -- and low 2016 mortgage rates -- just like the non-self-employed.Click to see todays rates (Jun 9th, 2016) New Rules Make It Easier On Self-Employed Applicants
New rules from Fannie Mae prove it's actually becoming easier for self-employed candidates to get approved for a mortgage.
Some conventional loan applicants need to provide only one year of tax returns, rather than the traditional two-year requirement.
To help matters, there are several steps you can take to greatly increase your odds of qualifying for favorable financing rates and offers.Self-Employed Mortgage Applicants Overcome Low Credit Scores
Experts say a big reason why some self-employed mortgage candidates can have a tricky time landing the right loan is due to low credit scores.
The aforementioned Zillow study indicates that, among self-employed borrowers, 28 percent have self-reported credit scores below 680, versus 14 percent of non-self-employed applicants in this range.
"Most self-employed, even if they are highly successful, have sporadic income. This can create periods where they may have been stretching their credit to get through the lulls or where they are more likely to miss payments," says Glenn S. Phillips, CEO of Lake Homes Realty in Birmingham, Ala.
"Because credit scores are indicators of consistent repayment of credit," says Phillips, "the self-employed can be more likely to have inconsistencies that lower their scores."
Credit scores can also decrease due to overuse of credit.
"Your credit score can take a hit downward if you carry a high balance-to-limit on your credit cards, even if you make all your payments on time," says Carolyn Warren, senior loan officer with Bellevue-Wash.-based Envoy Mortgage.
For instance, if your credit card has a $10,000 limit and your current balance is $3,500, your ratio is 35 percent.
This is considered a bit too high. A balance of 10 percent or less is ideal. Other credit improvement strategies are as follows.
- Wait until six months after mortgage application to open new credit lines
- Avoid closing old credit accounts
- If you miss a payment, try to make the payment before being 30 days late
With many loan programs, a low credit score won't stop you from getting approved. FHA loans require a minimum score of just 580 to qualify for a 3.5% downpayment.
Conventional loans offered by Fannie Mae and Freddie Mac allow scores down to 620.Click to see todays rates (Jun 9th, 2016) One Lenders Decision Is Not The Final Answer
Another challenge for the self-employed is verifying income. Non-self-employed borrowers receive a W-2 tax form from their employers that easily summarizes income and taxes.
Those in business for themselves, on the other hand, have to provide more paperwork to demonstrate employment and income, including personal and business tax returns.
A lender who doesn't know how to properly parse through these documents may unfairly reject an application that meets guidelines.
If you do not receive an approval, ask the lender for their income analysis. Typically, underwriters keep a calculation sheet with which they determined your qualifying income.
Take that paperwork to another lender. See if they can spot mistakes or find missing income that could help you qualify.
You could be approved at one lender, when you were recently turned down at another.5 Strategies For Self-Employed Mortgage Success
Self-employment never automatically disqualifies you for a mortgage. You need to meet the same basic guidelines as do applicants who work for someone else.
But implement these strategies to boost your chances of approval, and to get the best available rates.1. Review your credit report
Correct any credit reporting errors you spot before applying for a loan. "If you have any collections, ask the collections agency to delete the record when you pay, not show it as 'paid in full,'" says Holly Gustlin, senior loan officer with Calabasas, Calif.-headquartered Priority Financial Network.2. Don't write off too many tax deductions
Writing off too many expenses reduces your net income. This increases your debt-to-income ratio and makes it harder to qualify. "Avoid paying any 'gray area' personal expenses through your business. Sometimes doing this lowers your income below the level needed to qualify for a mortgage," says Gustlin, who recommends consulting with a tax planner for more detailed strategies.3. Strive for steady year-over-year income
Mortgage underwriters want to see a steady, predictable income flow from your business. If your most recent tax return shows lower income, offer to provide returns from three years ago, plus a profit and loss statement that details year-to-date earnings. This will provide a more accurate picture of income history.
Provide an explanation that the down year was a one-time occurrence.4. Pool needed funds into one personal savings account
Move all the cash you need to cover the downpayment, closing costs, and cash reserve requirements into a single account that has minimum activity. "This minimizes the paperwork necessary when you are in the loan process," adds Gustlin.
Once funds are in one account for 60 days, they are considered seasoned, meaning they are now considered personal assets. Taking funds out of a business account can require paperwork proving you have the ability to do so, and that it wont affect the business.5. Respond to lender requests
Gather all the needed documentation including at least the last two year's worth of personal and business tax returns, the most recent year-to-date profit and loss statement, and recent bank statements.
"It's also important to work with a mortgage lender who knows how to analyze your tax returns and design a strategy that will help you gain loan approval," says Gustlin. "If you work with someone who is experienced and educated, you should be able to get a home loan as easily as a salaried employee."What Are Today's Mortgage Rates?
Being your own boss doesn't mean you have to settle for a less-than-favorable mortgage loan. You likely qualify for better rates than you think. Find out by obtaining an accurate, up-to-the-minute rate quote from an experienced mortgage lender.
Get todays live mortgage rates now. Your social security number is not required to get started, and all quotes come with access to your live mortgage credit scores.Click to see todays rates (Jun 9th, 2016)
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Before you get too excited about Americans recent urge to splurge, theres another statistic you should know about, and this ones a little bit of a downer. At the same time consumer spending increased, Americans savings decreased, from $809.4 billion in March to $751.1 billion in April. Thats a $58.3 billion drop. That indicates Americans arent spending more because theyre earning more; rather, theyre spending more by choosing to save less or even tapping their savings to make purchases. (Personal income increased 0.4%, and disposable income increased 0.5%, while spending increased 1%.)Free Credit Consultation - Call 844-346-3296 Repairing Your Credit With Lexington Law Can Help You Save Money
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Put another way: The average personal savings rate dropped from 5.9% in March to 5.4% in April. There are a lot of opinions on how much people should save, but probably the most common rule of thumb says to put away 10% of what you earn. If thats what people are working toward, they lost a little momentum last month.
But these data are complicated. There are advantages to both saving and spending. Perhaps some of the people who diverted savings money to spending money last month did it so they could purchase something theyve needed for a while, like a new car or a more energy-efficient appliance that could end up helping them save money.
Ideally, you dont have to shortchange your savings goals to buy things you need, because building a sufficient emergency fund can be crucial to your financial health. Say you lose your job or come down with a sudden illness -- having enough money saved up to cover your necessities after an unexpected financial change can help you avoid going into costly credit card debt or missing payments, both of which could seriously damage your credit. (You can keep tabs on your credit by getting a free credit report summary, updated monthly, on Credit.com.) So, if youre spending some of the money you should be putting toward your savings, thinking youll make up for it later, you may be putting your financial stability at risk.
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