What is a sinking fund?
A sinking fund is a type of service charge which we use to build up a pot of money to replace a piece of equipment or to carry out work in the future which is not covered by your rent, or for homeowners, which is work which Magna is responsible for.
This spreads the cost of the items over a number of years and avoids one off large demands for payment from homeowners in particular. Where they apply, sinking funds are collected as part of your service charges. Examples of sinking funds include:
- Equipment and fittings in communal areas (eg carpets, chairs, cookers and laundry equipment)
- Door entry systems
- Fire equipment
- TV aerials
Who is expected to contribute?
Any residents who benefit from communal services are expected to contribute if their scheme or building has a sinking fund set up. Leaseholders who own flats are also expected to contribute towards the maintenance of the building.
How do we decide the level of your contributions?
We identify the type of equipment or repairs required and estimate the likely replacement date of the equipment. We then estimate the likely replacement cost of the equipment and calculate the contribution required in order to replace it on a like for like basis in the future.
Every five years we review these assumptions with the aim of adjusting the level of contributions if required.
There are strict accounting rules about sinking funds - we must keep them separate to our other income and we can only use them for what they are intended for. We send customers who pay into a sinking fund a sinking fund account once a year to show how much has been saved.
How are the sinking fund contributions collected?
The sinking funds are collected as part of the service charges levied on residents.
What do we do with the contributions?
The money paid into the sinking funds is held in a separate bank account. We can only spend it on relevant equipment for your scheme or building.
Is interest earned on the sinking fund contributions?
The sinking fund money is held in a deposit account with the view of earning bank interest. However, due to the historically low interest rates, the current interest earned is minimal. Any interest earned is also subject to tax under the taxation rules for trusts.
Are the sinking fund balances repayable on the termination of a tenancy?
Balances are not repayable on termination of tenancies or leases. However, if the sinking fund is no longer required then the funds held are repaid to the residents who have contributed after deducting the cost of replacement items on a first in first out basis.
How are leaseholder sinking funds treated?
Where a leaseholder contributes towards the maintenance of the building, their contributions are recorded separately and are used to pay for capital replacement or repairs as and when they occur. If the sinking fund does not have enough money to cover the repairs, leaseholders are expected to fund the balance.
When a leaseholder sells their property the fund is transferred to the new leaseholder.
How do I know the balance held in the sinking funds that I contribute towards?
Once a year in July we send you a statement showing the balances on all sinking funds that you have contributed towards in the year.
We charge a percentage of the total cost of some of the services we provide as a management fee. This will be no more than 20%. This covers the time we spend in recording and maintaining service charge data, preparing estimates and final statements, maintaining sinking funds, procuring and managing contracts aimed at providing good value for money services.
This is a charge made to customers who receive services such as personal heating and water, or personal lifeline charges. These charges are NOT funded by your local authority through housing benefit or the Department for Work and Pensions (DWP) through universal credit and you are responsible for paying them in full.
Examples of personal charges include:
- Personal lifeline - for the alarm in your home, if you have one
- The sheltered housing service (sometimes called the warden charge) - if you're claiming Universal Credit for help with your rent or other service charges
- Personal drainage - the maintenance of a communal sewage plant, fees from the Environment Agency, pumping or tankering costs when emptying the tank and the electrical or water supply to the plant; if you receive this charge, you won't be paying your water supplier for your waste water and sewage supply
- Personal energy - if the energy you use in your home, for example electricity, comes from a source shared with other properties, you'll be charged for a proportion of the total usage
- Personal water - if the water you use in your home comes from a source shared with other properties, you'll be charged for a proportion of the total usage