Getting on the property ladder isn’t easy these days, especially for first time buyers with fairly small deposits or those who do not have any or much equity built up in property that can be used as a deposit for an onward purchase. The good news is that the UK government are keen on stimulating the housing market and want to help people get that foot onto or up the ladder.
The Help to Buy scheme is an equity loan provided by the Government: secured by a second charge, in London they will lend you up to 40% of the cost of a new build home, outside of London this is capped at 20%. You will need a 5% deposit and a mortgage for the remaining 55% (in London) or 75% (outside of London). This means that you will have two loans when purchasing your house, the Help to Buy equity loan and a mortgage.
Helpfully, you will not be charged any interest on the equity loan for the first 5 years although a management fee of £1 per month is payable. Interest will be payable after the initial 5 year period has ended. Your mortgage repayments will start immediately and these are payable by direct debit to the bank who you took the mortgage with. However, the equity loan must be repaid after 25 years or earlier if you sell your home. Please be aware that the amount you will repay will be linked to the future value of your home at the time you sell it or pay off the equity loan. For example, if your house has gone up 10% in value, then the amount you must repay will be 10% higher than the original equity loan amount.
You do also have the opportunity to pay off or partially repay your equity loan without having to sell your property. This is known as “staircasing” and the minimum amount you can staircase each time is 10% of the market value of your property at the time you want to make the payment. You will need to instruct and pay a solicitor and an independent surveyor to carry out a valuation and the valuation will then need to be approved by the Help to Buy scheme. You can staircase in one of two ways, either by 1) paying the money yourself from your savings or from a gift or 2) by borrowing the money using another secured loan on your property, typically by taking extra money on your mortgage if approved by a lender. There is certain criteria that must be met in order to approve your staircasing and any potential additional borrowing, you should contact the Help to Buy scheme or a professional for further guidance in advance.
Tying all of the elements of Help to Buy together can be tricky, in particular the Help to Buy application and the mortgage application need to be in sync with both lending parties needing to know certain information about the other. We therefore recommend using an experienced mortgage broker to help with the process and we at Rhodes Advisory are very happy to help.
Lee is a Mortgage & Insurance Advisor and the Founder of Rhodes Advisory, he has over 13 years of experience in Financial Services. So far this year Lee has helped clients raise over £7m in mortgages. His company is an appointed representative of Openwork, an award-winning financial advice network, giving him access to exclusive rates not found on the high street.
FOR PE TO SNAP UP “GOOD” COMPANIES, THEY MAY NEED TO WADE INTO “BAD” ECONOMIES
By Martin Soderberg, Partner at SPEAR Capital
There’s no shortage of global challenges for investors currently, especially for those concerned with private equity (PE). PE and risk managers with their fingers on the pulse are turning to often overlooked opportunities in emerging markets. As Martin Soderberg discusses, while there are arguably higher levels of risk associated with such investments, the key is being able to identify good companies – and some of these may be found in bad economies.
While the current state of global markets and the enduring pandemic are anything but favourable for fundraising, some estimates indicate that up to $2.5 trillion in unutilised capital was sitting in PE houses globally earlier this year, simply waiting for the tide to turn. The McKinsey Private Markets Review 2020 reveals that $1.47 trillion of investor capital was deployed through the PE asset class globally in 2019. This represents impressive growth of private market assets under management by 10% for the year, on the back of total growth of 170% for the past decade. While, as any risk or asset manager will tell you, past performance is no guarantee of future results, the existing levels of available capital (if prudently allocated) have the potential to extend this decade of growth through the COVID-19 storm.
The International Monetary Fund (IMF) has already announced that it expects global growth to contract by 3% for 2020, representing a revised downgrade of 6.3 percentage points from January 2020. The IMF concluded that a revision of such magnitude over such a short period is an indication that the world is in the midst of the worst recession since the Great Depression and in a far worse position than during the Global Financial Crisis of 2009. While some would argue that investment in any country is potentially unstable in the current recession – evidenced by prices in investor safe havens such as gold skyrocketing to all-time highs, almost testing the $2,000 level this week – stability exists within key sectors such as healthcare and fast-moving consumer goods (FMCGs). This was exemplified late last year through Nigerian edtech learning platform uLesson’s closing of a $3.1 million seed-level round led by TLcom Capital, to address infrastructure and learning gaps in Africa’s education sector.
Population growth and urbanisation typically drive consumption in these and other sectors. Sub-Saharan Africa has experienced growing numbers of first-time migrants into cities and leading economic nodes, with pre-COVID estimates that 50% of Sub-Saharan Africa’s population will be living in cities by 2030. In addition, burgeoning middle classes and the younger populations of developing nations is resulting in increasing levels of disposable income. At a media briefing in June, however, the IMF projected that Sub-Saharan Africa’s economy will contract 3.2% in 2020 – double the contraction forecast earlier in April. FMCGs will have taken a knock across all markets and varying recovery periods, which also ought to be borne in mind. So PE firms need to revise their approaches to investor engagement, strategy and transparency to convince, secure and guide investor capital into emerging markets presently.
Finding the right quality asset
There is of course a definite need for macro analysis of the country your investment or acquisition target is stationed in. Along with the six different forces macro environments typically consist of – namely Demographic, Economic, Political, Ecological, Socio-Cultural, and Technological – under the current coronavirus circumstances additional consideration by investors and risk managers also needs to be given to the COVID-19 policies and responses being implemented by the countries these companies operate within, as well as the fiscal measures being implemented. Although these are particularly complicated and extraordinary variables to attempt to measure, their impact on GDP contraction as well as debt-to-GDP ratios within the countries concerned can potentially be forecast in the short- to medium term.
With this in mind, it’s worth identifying scalable entities with realistic potential for regional expansion where instilling a balanced measure of operational and strategic influence is possible at management and board levels. A recent example is PE firm Mediterrania Capital Partners, which focuses on growth investments in SMEs and mid-cap companies in North and sub-Saharan Africa, acquiring a stake in Akdital Holding, which operates five clinics in Morocco.
It’s important that liquidity management takes precedence over solvency, which often serves as an indication of top line growth. At the same time, one must also take into account worst-case scenarios within the markets one is investing in and plan accordingly for crisis scenarios, such as debt, liquidity options and operational costs that can be scaled back.
In addition, micro and macro risk management should be thorough, particularly in light of escalating trade wars between developed nations and instances of seemingly nationalistic legislation being passed that may be unfavourable to specific emerging markets and spur further GDP contraction. Furthermore, evaluation of local political risk and the potential for obstruction or intrusion at investment and operational levels should be borne in mind.
The lockdown conditions associated with COVID-19 have also significantly impacted logistics planning and provision, across borders to neighbouring states as well as overseas. Furthermore, we’re in a period of increased currency volatility which has a knock-on effect on export and import potential. However, such limitations create broader opportunities for PE firms to generate further value by concentrating greater focus on ESG in the markets in which they already operate. Such focus is typically undervalued, yet has the potential to generate greater revenue while ultimately attracting further investment – providing firms are willing to transparently evidence tangible progress..
PE and foreign direct investment scepticism
When entering and engaging with companies that have scalable investment potential in emerging markets, one should expect varying degrees of caution by companies in emerging markets, which is sometimes misinterpreted as protectionism. Historical injustices in many Sub-Saharan nations have understandably dented local confidence in foreign direct investment. Furthermore, companies will be wary of recurring instances where opportunistic investments by PE entities rendered relatively worthwhile returns for investors but created debt rather than any genuine value for the company concerned.
Therefore transparency and the ability to wear your PE credentials on your sleeve is paramount, such as evidence of accelerated revenue growth, increased capital expenditures and expanded profit margins in the financial reporting of your existing portfolio. If your portfolio is little more than smoke and mirrors designed to conceal debt as well, slowing revenue growth or capital expenditure as a percentage of sales declined and little evidence of revamped strategies and additional management perspective, then you’re setting yourself up to fail.
There will be continuing debate for some time to come as to whether reluctance to invest in emerging markets will be a PE stumbling block, given the hunt for yield. Thoroughly investigated company investment opportunities have to be afforded genuine investment value in terms of expansion and enrichment, not only for yields to materialise but also for the yields to be worthy of the investment itself. While now is the time for PE firms to begin putting in the groundwork, as much as an additional year, by conservative estimates, may need to be factored in before capital can realistically be deployed. But for those who carefully identify unwavering trends in emerging markets over the next six to 12 months and articulate genuine opportunities to investors, there is scope for the PE asset class to exhibit substantial growth over the course of the coming decade, while capitalising on the “good” companies blooming in “bad” economies.
HOW SALARY SLIPS HELP YOU UNDERSTAND TAX DEDUCTIONS ON YOUR SALARY
A salary slip is defined as a document that is provided by your employer which contains the breakdown of your earnings, deductions, and other variables. Your monthly payslip will have the amount that is being paid to you and the deductions that will be made. This document is generated on a monthly basis, the employer hands over to you either over mail or a physical copy.
Importance of understanding the salary slip
As it is the legal proof your employer will give you acting as proof of your employability, it will help one understand the components and the salary associated with their position of responsibility. It helps you to fill your income tax returns, applying for loans, etc.
- Exploring opportunities: Your salary slip will play a pivotal role in having a raise or switching from one company to another, it acts as a negotiating factor between you and the employer.
- Tax Calculation: There are different tax treatments for different components in your salary slip. Knowing about these components will help you in encashing various benefits available for tax deductions, we will see in detail the various components of salary slip and how to avail the tax benefits from them.
Components of salary slip
The salary slip is generated every month, but do you really understand the format and the components associated with it? You need to learn about salary slip and then understand the terminologies and different variables that are included in your salary slip. Let’s not worry we will structurally break down the components and try to understand everything:
The deduction side
The professional tax, employee provident fund (EPF), tax deduction at sources (TDS) are the major components:
1. Professional tax: This is a small amount taxed by the state government by the earning professionals. The majority of the Indian states tax this amount to the individuals not only for the professionals but for individuals who earn a living. This deduction of the amount is from the taxable income. This amount is a very small amount, generally in a few hundred, which is majorly dependent on the gross tax slab of the individual.
2. Tax deducted at source (TDS): An amount the income tax department charges and is deduced by the employer. It has a similar criterion like professional tax, which is dependent on the gross tax slab of an employee. If you have invested in schemes like tax-saving FD, PPF, ELSS, NPS can reduce the amount paid to the tax department. As this comes under the 80C section of the Indian income tax, this increases your take-home salary. You can also invest in the mutual funds and submit the proof to your employer, further claiming the TDS returns.
3. Employee Provident Fund (EPF): This qualifies under section 80C of the Income Tax Act, this EPF goes to the contribution of an employee to the provident fund. This fund basically accumulates the amount for your retirement period. 12 percent of the basic salary of the employee goes to the EPF, the employer also makes a similar contribution towards the employee for their retirement. This whole process is governed and managed by the Employees’ Provident Fund Organisation.
The earning side:
1. Basic: This is the fixed component of your salary as the name suggests. This is usually the largest component of your salary. The fixed or basic salary defines your HRA furthermore, your PF is deducted as a percentage of your basic salary. The basics tend to be higher at the junior level. The salary in hand is 100 percent taxable to the employee.
2. House Rent Allowance: This allowance is for the individuals who live in rental houses or apartments. There is a partial or full exemption from taxes depending on the rental expenditure of the individual. If you do have HRA but you do not live on a rental basis then this component is fully taxable.
3. Conveyance Allowance: The amount of travel to and from the workplace by the employer to the employee. This allowance is generally exempt from tax until a limit so one can save on tax on this allowance. This appears on the earning side of the payslip.
4. Medical Allowance: For the medical expenses during the time of employment at a company, the employer provides an amount for the medical expenses for the employee. This amount is only received by the employee post presenting the medical bills to the employer as a proof. If the employee fails to provide the necessary certificates and bills, this amount shall be fully taxed. On the other hand, if the employee provides the proof of documentation the allowance is up to Rs. 15,000 that will be exempted from the tax.
5. Special Allowances: These allowances are performance-based allowances, they are generally given to the employees to derive motivation and better work. They are subject to companies and may be variable. These allowances are 100 percent taxable.
It’s most important to understand the salary slip for an individual, as it acts as a proof, credible source, helps in the background check, and many more cases. It also gives the growth trajectory of the individual for other employers. Salary also gives you the opportunity to get various loans, credit cards, and other borrowings.
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