What is better, Child Trust Fund or Junior ISA?
Child trust fund (CTF) is a tax-free savings product for children. These funds were available for children born between September 2002 to January 2011. However, now these funds have been closed.
All the below is subject to relevant legislation. This is for information only. Please always seek professional advice before acting. The tax depends on individual circumstances and may change in future. The value of your investment can go up or down and you may get less than invested.
What is a Child Trust Fund?
Child Trust Funds (CTF) were introduced in April 2005, designed to provide children with a financial boost when they reach 18 years of age. Also, the UK government contributed £250 and £500 to boost every fund. The CTF offered three options:
- Stakeholder CTF: this type of child trust fund puts the savings you make for your child into stock market investments. The rules meant that the charges were capped at 1.5% per year, and the money had to be invested in a variety of investments.
- Cash CTF: these child trust funds are quite similar to a cash ISA. With these accounts, you earn tax-free interest.
- Share-based CTF: these child trust funds allowed account holders to either choose an investment fund to put the savings onto the stock market or choose their investments.
How does a Child Trust Fund work?
The UK government sent vouchers to the parents for the funds as opening payment, with more contribution for children who belonged to low-income families. Once the child trust fund was opened, the parents or guardians could make additional payments of up to £4,260 every year. However, if they don’t pay the full £4,260, the remaining allowance cannot be rolled over to the next year.
Parents can also make deposits into stakeholder accounts through direct debit, cheque or standing order. Share and savings providers may vary, so parents have to check the kind of payment their providers accept. Once the child holding CTF turns 16, they can manage the funds themselves. However, they can’t withdraw the money until they turned 18. If the child becomes terminally ill before they turn 18, they can withdraw money out of their CTF account. In case of the child’s death, the funds will be passed on to the person who inherits the rest of their possessions and property.
How can a 16-year-old child manage their CTF?
When a child turns 16, they can manage their child trust fund. In order to do this, they can contact their CTF provider. Then, they can decide where the money is invested, change investment type, pick a different investment structure or switch providers. If a child does not wish to manage their CTF, then they can leave their parents or grandparents in charge till they turn 18, when they become eligible to withdraw it.
Why the government closed Child Trust Funds?
The child trust funds were discontinued in 2011 January and were replaced by the Junior ISA. By this time, the interest rate on child trust funds had fallen, while the charges for investments were high compared to Junior ISA charges.
The UK government does not pay any contributions for the Junior ISA. This means that the child only gets the money their parents’ deposit for them. However, in April 2015, the government of the UK made it possible for CTF holders to switch to flexible junior ISAs.
Should you switch from Child Trust Funds to Junior ISA?
There are a lot of reasons for you to make the switch:
- Junior ISAs offer higher interest rates.
- There are several Junior ISA providers in the market.
- Junior ISAs fees are lower. You may only have to pay an annual fee of between 0.5% and 1% compared to 1.5% with share-based CTFs.
- Most child trust funds do not allow new investments, while Junior stocks & shares ISAs offer a wide range of investments.
It is important to know that while you have Child Trust Funds, you will not be able to pay into a Junior ISA at the same time. So, if you want to subscribe to Junior ISA deals, you must transfer the child trust funds within 60 days of opening a Junior ISA.
How to transfer CTF into a Junior ISA?
Before you transfer to a Junior ISA, make sure you check your Child Trust Funds value, especially if it’s share-based. Also, it is good to check if the CTF has any exit fees or guarantees which might be lost if you transfer from the CTF.
After you have completed the check, you need to find a Junior ISA provider that fits your needs. Once you have the right Junior ISA for your child’s savings, you will have to complete the transfer form, which will require your child’s information and details about their Child Trust Funds if you are opening a stocks & shares ISA. You will have to specify where you want to invest the money.
Once you have submitted the form to the provider, they will complete the transfer for you. Typically, the transfer takes up to 30 days, and your CTF will then be closed.
How to find out if you have a Child Trust Fund?
If you are unsure about having a CTF, the HMRC has a dedicated service to know where a CTF is held. You will have to provide some personal information to track down your Child Trust Fund. But, first, you will need to set up a government gateway account.
Once you know where your CTF is, you will have to contact the provider, and if you are over 16 years old, you can get control over your account. It has been estimated that more than one million Child Trust Funds are ‘lost’ to their owners. This happens because most CTFs were opened by the HMRC either because the child’s parents didn’t do it or when families were getting child tax credit.
All the above is Subject to relevant legislation. This is for information only. Please always seek professional advice before acting. The tax depends on individual circumstances and may change in future. The value of your investment can go up or down and you may get less than invested.
*Capital is at risk and Kuflink is not protected by the FSCS. Past returns should not be used as a guide to future performance. Securing investments against UK property does not guarantee that your investments will be repaid and returns may be delayed. Tax rules apply to IFISAs and SIPPs and may be subject to change. Kuflink does not offer any financial or tax advice in relation to the investment opportunities that it promotes.
What is a development loan?
Purchasing a property at a low price, developing it to increase its value to make profit, sounds like a good plan. However, in order to achieve this, you need to understand how development finance works to ensure you start right and take your development project in the right direction.
What is a development loan?
Development loans are typically between 12 to 24 months. They are designed to help with the building cost of a residential or commercial development project. This could be a ground up development, refurbishment, or conversion.
How Does a Development Loan Work?
Development finance has two main parts. First, funding is required to buy the development land/property and second, a development loan is used to cover the build costs. The second part of the development finance is generally drawn down in tranches (usually against a monitoring surveyors report or invoices of works undertaken). So no advance is given by the lender for this specific tranche unless a report proves the work has been done and there are no issues outstanding.
The development loan will usually be dependent on a sign-off from a Project Monitoring Surveyor (PMS), based on the project type, developer experience, and build cost. The PMS acts as the lender’s eyes and ears to ensure the work progresses on budget and on time.
They will also flag any potential issues there may be with the development or the site itself. An example would be where building materials costs have increased therefore, the original build appraisal will be out in terms of costs and or time. A lender would then need more equity to ensure the development will be covered by the original loan arranged. All issues have to be resolved before a loan tranche will be advanced by the lender for the works the builders have just done and prepaid.
The PMS will act for the lender, but the borrower will pay their costs.
Some clients will undertake the build themselves if they have sufficient experience and some will employ a contractor to undertake the works for them to ensure the build is of a suitable standard and within regulation.
The funding amount is determined based on an independent valuation report which provides three key things:
- Current open market value: the value of the property/Land as the current time
- The construction costs: this will be all the build costs for the development
- The gross development value (GDV) : the value of the property after the development has taken place and all works are complete
All lenders will have their own lending criteria but each deal is evaluated taking into account the value, build costs and proposed GDV. Lenders will look at the build, the developer, the security, valuations, build costs etc before deciding whether they can lend or not.
Here are some key points to help you understand development finance:
- Minimum loan size
Every lender has its own lending limit, which usually starts around £50,000.
- Loan to cost
In simple words, this is the cost or loan amount that is needed to undertake the project. A lot of lenders provide funding for up to 80% of the project. However, with high financing comes higher risks, which means high interest rates. So borrowers should be prepared to pay high-interest rates.
- Loan To Gross Development Value (LTGDV)
LTGDV is where money is lent against the predicted market value of the property once complete. This is one of the essential metrics to consider for investors and developers. The standard LTGDV tends to be 60% to 65% for lenders.
- Loan Term
Most lenders offer development finance for 12 to 24 months.
- Experience
Experience is very important for lenders, whether you are a Ltd company or a sole trader. Most lenders like to see your experience with similar development projects as this will demonstrate your ability to undertake the build.
All these details are put in the offer of funding. Once the borrower accepts the offer, the lender begins the formal process. Furthermore, the paperwork regarding loan is handled by both parties (borrower and lender) solicitors. After all legal formalities are completed, the funds are released to the borrower.
The repayment for the development loan is expected within the agreed term date. However, in some circumstances, borrowers might be able to get an extension for the repayment with additional charges.
Bridging loans
Bridging loans are short-term loans that are used for immediate cash flow. One of the biggest advantages of bridging loans is that you can secure funds fast.
With a bridging loan you can;
- Purchase a property quickly (maybe at auction): Unlike the high street lenders, bridging loan UK companies can offer loans quickly so you don’t have to lose the property you are looking for.
- Secure land planning permission: with bridging loans, developers can complete the purchase of the site while applying for planning consent.
- Bridging the gap between purchase or renovation of property: if you have made an offer on the house or your build project needs turnaround without delay. With bridging loans, you can seize all opportunities.
These loans can act as the initial step for development finance. Developers can purchase a property with a bridging loan and use a development loan for build work.
Paperwork needed for Development Finance
Paperwork is the most important part of the loan application. In fact, with development finance, there is more paperwork because the property’s future value is taken into account. For development finance, developers will need the following:
- The current value of the property or purchase price of the property if not already owned
- Predicted property end value along with evidence i.e. valuation
- The schedule of cost of renovations and building
- The complete schedule for development
- A copy of property planning permission
- Complete details about other professionals involved in the project
- All details of building regulation
- A portfolio to show experience in similar projects
- Any planning restrictions in place
- All details about the building regulations
- and more
Development Loan Example
Let’s say you are purchasing land on which you want to build multiple properties. The cost of the land is £150,000, and the predicted build cost is £600,000. With a bridging loan, you may get funding for up to 60% of the land purchase, and with a development loan, you may get funding for up to 60% of the build cost.
- Land purchase cost = £150,000
- Predicted build cost = £600,000
- Bridging loan = £90,000 for land
- Development loan £360,000 for the build
- Total Funding £450,000
Property Development 7 Phases
We have identified 7 Phases of property development. With this simple system, investors will be able to see the development project’s progress.
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* Capital is at risk and Kuflink is not protected by the FSCS. Past returns should not be used as a guide to future performance. Securing investments against UK property does not guarantee that your investments will be repaid and returns may be delayed. Tax rules apply to IF ISAs and SIPPs and may be subject to change. Kuflink does not offer any financial or tax advice in relation to the investment opportunities that it promotes. Please read our risk statement for full details.
Are SME developers swapping banks for alternative lenders?
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Kuflink Reveals it’s Working on Open Banking Updates
Kuflink‘s management writes that together, with users’ feedback, they’re able to fulfil the company’s purpose in “Connecting People to Financial Freedom.”
Kuflink’s New features for July 2021. Stand Up with CTO
The Kuflink Tech Team has worked diligently to bring new features for July 2021 forward. Together, with your feedback, we are able to fulfil Kuflink’s purpose in ‘Connecting People to Financial Freedom’.
Quote for July 2021
“Mastermind Alliance: The Mastermind principle consists of an alliance of two or more minds working in perfect harmony for the attainment of a common definite objective. No person can become a permanent success without taking others long with them” – 2 of 17 Napoleon Hill’s 17 Principles of Success. (To see previous Napoleon Hill’s 17 Principles of Success please refer to previous CTO blogs).
What’s New or on its way to the Kuflink Platform & Kuflink Mobile APP for July 2021
1) We are now working on a new feature that will allow IF ISA Transfers In to enter into ISA eligible Select Invest Deals – this means clients can decide which ISA eligible Select Invest deals they want their ISA transfer to go into.
2) A new segregated IF-ISA wallet, and SIPP wallet (which also comes with surprise features) – development has started.
3) We are currently testing our payment facility using Open Banking on the investment platform in closed beta mode. This will allow our users to transfer funds to their e-wallet instantly using bank transfer. The facility will be available to our investor community shortly.
4) On the lending arm we are currently building the process, through Open banking, to add an additional layer of borrower verification in real time and building a process to ascertain income vs expenditure for a potential borrower across all accounts. This is a step forward in reducing paperwork and unnecessary communication thereby improving efficiency in the process. All in all we should, in theory, gain access to all necessary information through a simplified online process as opposed to numerous phone calls, email chasers etc.
5) Work on upgrading our proprietary deal risk / pricing tool in our CRM system by connecting to live data feeds, and allowing new fields to better assess the risk and price on deals is continuing. This is especially important in light of economic events like Brexit, the COVID-19 pandemic, and price hikes on raw materials (which will affect development appraisals). We are working with a ‘Royal Institution of Chartered Surveyors’ (‘RICS’) valuer and a seasoned developer / builder (both in our Credit committee), to further enhance the tool’s sensitivity to such events. We envisage to connect this information to our live loans on our platform to provide a timeline of any given loans risk.
6) We are working on upgrading our Dashboard. Live Charts, proprietary budget tools, links to other investments, accrued interest, etc. will be on display in a singular view.
7) Portfolio page will also show which Select Invest deals have been put into the ISA wrapper – development underway.
8) Kuflink responded to an FCA survey on High risk investments (submitted 1st July 2021) – FCA will update the rules at the end of this year.
We have taken the view that developments should not be treated as high risk, as all our development loan deals require a RICS approved valuer to produce a ‘Project monitoring Surveyors’ (PMS) report before each tranche of a loan is drawn. As an aside, we have started working on showing a ‘7 phases of Property Development’ bar which will move as the development continues per tranche. There will also be a guide to property development.
CTO thoughts for July 2021
Every organisation has unexpected chaotic situations. This could be a code release gone wrong, a critical bug in the system, system performance, or any other issue. When leaders enter the meeting, whether virtual or in house, team members expect at the end of the meeting, things will be more clear and there will be a well thought out plan that the team can follow. Our job is to reduce the chaos and bring more clarity. We have to simplify the problem by asking questions. This involves getting to the source of the issue and removing all unnecessary information associated with it. Leaders make the team think, by asking deep and broad questions. We create a small to do list with clear actions and assign owners to the tasks using our tech management system and monitor the progress through the build. At all times, we keep thinking and asking questions, searching for edge cases which will come, but may not be seen at the beginning. Most team members find it easy to incrementally add value once someone has done the initial effort. This means a lot of upfront deep thinking and learning is required before we hand over tasks to the team.
* Capital is at risk and Kuflink is not protected by the FSCS. Past returns should not be used as a guide to future performance. Securing investments against UK property does not guarantee that your investments will be repaid and returns may be delayed. Tax rules apply to IF ISAs and SIPPs and may be subject to change. Kuflink does not offer any financial or tax advice in relation to the investment opportunities that it promotes. Please read our risk statement for full details.
Airspace Development – All you need to know
Airspace developments are a great opportunity for property developers to build new housing in populated areas like London in a cost-effective way.
Airspace development has been making headlines in the world of property development. Do you know why? Let’s see what airspace development is, how it benefits us, and what is different about it.
The UK government in 2019 announced the relaxing of permitted development rules for buildings to add residential ‘top floors’. Furthermore, a new scheme was introduced by the housing secretary. The scheme relaxed the airspace development rules and allowed construction of up to two storeys on existing buildings without having to worry about the hassle of getting full planning permission – though a certificate of lawful use may still be needed.
Consequently, airspace developments have become a great opportunity for property developers to create new housing in densely populated areas like London in a profitable yet cost-effective way.
There are different opinions on this announcement. Many believe that airspace developments can resolve the UK housing crisis. At the same time, others fear that this step is a ‘race to the bottom’ with regards to standard, including light and space.
However, some have predicted that airspace development will result in up to 200,000 new houses in Greater London. So these types of development opportunities are an excellent step taken by the government.
So, what is airspace development?
A technique where developers use the rooftops of buildings for constructing new homes. With airspace development construction techniques, more homes can be created entirely off-site in factories. Plus, this type of construction can be done in a matter of days, making it time-efficient as well. Many are calling it an innovative solution for building houses that do not violate green belt land.
However, airspace development can only be successful when it fits well with the rest of the building and its surrounding area. So, it is important to make sure that any developmental changes are respectful of the existing architecture. This can be achieved by improving the communal areas and by enhancing the amenities such as cycle storage and lifts, which benefits the residents and brings the building up to safety and modern health standards.
Airspace development: How is it different?
There are no specific or unique requirements for airspace development. The required components, including land, funding, services and construction, are all there. But, the things that make it different are technical difficulties, potential design, the legalities regarding tenants or occupiers, like the right of light and access, or party walls. These additional considerations might make construction challenging and make funding a little tricky.
Advantages for Building Owners
- Upgrades to the building
- Cost savings on building maintenance and service charges
- Increase in value of property
- Extra income for freeholders
- Minimal disruption with an innovative construction method
Advantages to the wider community
- Less demolition and waste
- Preservation of existing buildings, communities and occupants
- Considerable increase in new houses
- Increase in housing with visual impact
Considerations
- Lease holder concerns
- Structural Capabilities
- Access routes for cranes
- Fire protection
- Maintenance
- Provision of services
- Quiet enjoyment by current tenants would be lost
- Tenants right of first refusal if the airspace is being sold or leased
- And so on
Why airspace development is an exciting area of development?
The opportunity to develop in London, the city where the property is at a premium, is a profitable and exciting prospect. By adding storeys to an existing building, a lot of new houses can be built with minimal disturbance to the residents and communities.
Moreover, airspace development is a sustainable method of building new houses since existing buildings get preserved and improved for saleability instead of falling into a state of disrepair.
How to Secure Funding for Airspace Development?
While the opportunity is large, the funding options may be limited. Many lenders do not understand the concept of airspace development and consequently may be reluctant to give loans for such projects because of project feasibility, the ‘non-standard’ nature or the amount of risk.
*Capital is at risk and Kuflink is not protected by the FSCS. Past returns should not be used as a guide to future performance. Securing investments against UK property does not guarantee that your investments will be repaid and returns may be delayed. Tax rules apply to IFISAs and SIPPs and may be subject to change. Kuflink does not offer any financial or tax advice in relation to the investment opportunities that it promotes.