FINANCE
Bridging finance on the rise
Bridging finance, a short-term funding option used to ‘bridge’ a gap between financial obligations, is on the increase according to leading regional law firm Banner Jones. Andrew Fielder (pictured), Commercial and Residential Property Specialist, discusses the driving factors behind its increase.
Fast, flexible and secured, bridging finance provides borrowers with a quick cash injection they require for a short term period until they are able to refinance the loan elsewhere or dispose of the asset against which the funding is secured. A method of providing timely
access to cash, bridging finance is being used increasingly for a variety of commercial and residential property projects where funding is not available from traditional high street lenders. Bridging finance loans are the
primary port of call when the lending circumstances of the borrower do not match with the criteria required by mainstream lenders. With this in mind, many borrowers have started to
recognise how they can apply a short-term loan, utilising the funding to benefit their property transactions and their businesses. These are being used to support
commercial and residential property transactions, auction purchases and renovation and development projects, while many businesses also turn to the short-term option when they require a quick cash injection to fund a renovation or commercial property transaction. There is notably a growing trend
in the market, perhaps owing to the increased confidence in the post-Brexit vote economic climate, the lack of appetite from mainstream lenders to support projects and the low returns private investors are able to obtain on their savings.
Banner Jones has noticed a rise
in bridging finance enquiries, which may also be a result of the increase in levels of activity in the property market in recent months. More people turn to bridging
finance as an alternative to mainstream high street lending owing to the flexibility that short- term loans provide, and the lower lead time on completion. A commercial mortgage may take months to transact as opposed to the quick cash injection of the bridging finance loan. Behind this increase may also be
the growing confidence in the improving economic climate which has led to bridging finance becoming an increasingly appealing option for investors and business.
The truth about tax dividends
Owners of limited companies could lose out on more than £1,100 under tax changes to the dividend allowance that came into force recently. Jacquelyn Kimber, Tax Partner at Newby Castleman, looks at the changes to the way company dividends are taxed.
Dividends can be a tax efficient way for companies to distribute profits, and a tax free allowance was introduced in 2016 which particularly benefited smaller shareholders. The allowance applied to the first £5,000 of dividend
income and is available to all taxpayers, irrespective of their overall level of income. Dividends above the tax free threshold are taxed at special rates, slightly below the rates applying to other forms of income. In April 2018, however, the tax free dividend
allowance was cut from £5,000 a year £2,000, meaning shareholders will take a financial hit, the size of which depends on which tax band their dividends fall into. Company owners, who have come under increased financial strain in recent years due to changes in dividend taxation, are set to lose out even further under the cut to the Dividend Allowance. For example, if their dividends fall into the basic rate
band, they will be £225 worse off (7.5% basic rate dividend tax x £3,000), while the changes will cost higher-rate taxpayers £975, and additional-rate taxpayers £1,143. The real losers though are those who receive modest
levels of dividend income - below £5,000 - who were not previously required to fill in a tax return and who will now be pushed back into the self-assessment system. This seems at odds with HMRC’s stated wish to take taxpayers with minimal sources of non-PAYE income out of self-assessment. There have been huge changes in the way dividends
are taxed in recent years, and this latest tinkering with the dividend allowance, which was only introduced two years ago, is a particularly unwelcome move. For a full, comprehensive review of your income tax
affairs we would recommend speaking to a professional financial adviser.
business network May 2018 73 Jacquelyn Kimber
‘This latest tinkering with the dividend allowance, which was only introduced two years ago, is a particularly unwelcome move’
My advice to an individual
looking to secure short-term finance would be to ensure you have a strong exit strategy and that it is attainable within the time frame required. It is the exit strategy that will
help determine how fast and flexible your bridging finance loan will be which may be in the form of a sale, a re-financing solution or a cash redemption from another source. Often, bridging finance loans are
required at speed, and many individuals and businesses underestimate the time taken to complete the required checks. With this in mind, it is vital to act
sooner rather than later if looking to secure a bridging finance loan to avoid disappointment.
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