Building for the future with bricks and mortar

Property investment can undoubtedly bring rewards, but it’s important to recognise the potential pitfalls too, writes Jonathan Wilson of Barnett & Turner. Although there are all kinds of possibilities when it comes to investing for your future, property understandably seems an attractive option for both individuals and businesses. It’s worth bearing a number of factors in mind though before taking the plunge with bricks and mortar.

First of all, there’s no guarantee of a quick profit. You may well see a good return in the long run, but it’s important to be patient. It’s also not particularly wise to see property as a way of releasing easy cash. Although it’s always possible to remortgage, it’s difficult to predict fluctuations in property prices and the ratio between loans and value. And who can forecast all the political and economic changes that might influence the price over a particular period of time or in a specific region?

Think about your objectives

One of the attractive features of property investment is the possibility of seeing an increase in capital value over time, while also receiving a rental income. You’ll need to be clear, however, over which your priority is.

If rent is your primary focus, are you confident you can attract reliable tenants in the area you’ve chosen to invest? With your mortgage and tax commitments, you’ll need to generate enough regular income to cover your outgoings and make some profit on top.

If you’re aiming for an increase in the value of the property, how well are you able to read the market? Can you be sure that demand is likely to increase in a particular geographical area?

Factors you can’t ignore

It’s sometimes easy to forget the inconvenient, yet essential, costs associated with property purchases. Surveys, solicitors’ fees and stamp duty are just the start. You also have to factor in the time involved in management and maintenance. And don’t forget that mortgage rates will inevitably fluctuate over time.

The best advice is to go into any new property venture with your eyes open. If you’re patient and prepared to invest for the long-term, then the potential for good returns is definitely there. But don’t underestimate the challenges and remember to seek some guidance from your professional advisers along with way!

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Property a hot topic as CGT changes loom

Draft legislation is about to herald a new era in capital gains tax. The changes – due to come into effect in April 2015 – will have an impact on all non-UK residents who dispose of a residential property located in the UK. Any gains realised by either a sale or a gift will be subject to CGT, regardless of the value of the sale. It’s not just individuals who will be affected by the change. The rule also applies to non-resident companies, partnerships, trustees and personal representatives of deceased non-UK residents. Although institutional investors (non-UK resident pension schemes or foreign real estate investment trusts investing in UK residential property) will be exempt, no reliefs or exemptions are generally available if the property is held for investment purposes, even if it has always been rented out.

What’s more, the charge will apply to properties under construction and being adapted for residential use – including land that forms the garden or grounds of a residential building.

Only gains from 6^th April 2015 will be charged. Normally, the property will be rebased to its market value at that date. Time apportionment can, however, be used to calculate the gain after 6^th April or the gain and loss can be computed over the whole period of ownership.

Companies with properties already subject to Capital Gains Tax on Enveloped Dwellings (CGTED) for the entire period from 6^th April 2015 to the date of sale, will not be subject to the new provisions.

Can Main Residence relief be claimed?

If a nomination is made, it’s possible for Main Residence relief to be granted. The property does, however, have to be located in the same country in which the taxpayer is resident for tax purposes. It’s also essential that the taxpayer spends 90 midnights in the property during the tax year.

Facts and figures at a glance

• The annual exemption amount (£11,000 for 2014/15) is available to non-resident individuals.
• CGT for non-resident individuals will be 18% at basic rate and 28% for higher rate taxpayers.
• Non-resident trusts will pay 28%, while non-resident will be charged at 20% and indexation allowance will be available to take inflation into account.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Property ownership: a talking point for husbands and wives

The way in which you share ownership of property with your spouse can have big financial implications, writes Tracy Henson of accountants Barnett & Turner. When a husband and wife buy a house together, they are usually ‘joint tenants’, which means they have equal rights to the property. In the event that one of them dies, the home will automatically pass to the other partner, but it’s only possible to sell or remortgage with the other’s consent. A good analogy is to think of the property as a bowl of soup. It’s not possible to cut it in half.

If you’d prefer your property to be more like a cake which can be sliced in various directions, then it’s essential that your legal status is as ‘tenants in common’. This allows for different shares of the property to be owned by the two partners.

Imagine a scenario, for instance, in which you own a second home and rent it out. If your spouse is working and is a higher-rate taxpayer, but you earn a lot less, it makes sense for you to receive the rent as income. That way, you’ll end up paying a lower marginal rate of tax and help to protect your child benefit at the same time, as you could avoid your partner heading over the £50k threshold established by the government.

It’s worth bearing in mind though that HMRC will, by default, consider you to be joint tenants, so you need to make your status clear and legally watertight. It’s usually a simple matter, if both of you agree. You just need to arrange to make a declaration of trust stating the way in which the shares are owned. Alternatively, one partner can issue a notice of severance. The co-owner simply has to acknowledge receipt. Either method then also requires a form to be sent to the Land Registry.

Most of the time, I would advise my clients that the minority shareholder in the property should retain at least a nominal 1% stake. Remember that you’re not just splitting ownership of the income, but also the underlying ownership of the house or apartment, which calls for a great deal of trust. If a husband, say, has all the earned income in the household, while the wife receives the proceeds from property, this may be good news from the perspective of income tax liability, but may not be an ideal scenario in relation to Capital Gains Tax and inheritance tax. So talk through the options with your accountant before making any fundamental decisions.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

Own a second home? The taxman may be ringing the doorbell.

Don’t assume that the Revenue won’t investigate you for the profit on your rented property, writes Jonathan Wilson, Partner at Barnett & Turner. A new campaign is under way and it’s time to take action. According to HMRC, landlords may owe more than £500m in unpaid tax from the profit they make on renting out homes. Although there are 1.4m people who let property in the UK, half a million of them aren’t even registered with the taxman. It’s figures like these which have led to the creation of the Let Property campaign, in which the Revenue may investigate as many as 900,000 property owners renting out homes in the UK and overseas.

Although the news may come as a shock if you’re currently a landlord of a second home or investment property, it’s worth thinking calmly and seeing the initiative as an opportunity to perhaps get your affairs in order.

You can make a voluntary disclosure to HMRC about any undeclared income by phoning the Let Property campaign helpline on 03000 514 479. Tell the Revenue that you want to fill out a notification form and they’ll then give you three months to calculate and pay what you owe.

Many categories of individual landlord can benefit. It doesn’t matter whether you have a single property or more than one. You can be living abroad and renting out a property in the UK or doing the reverse. Specialist landlords – dealing in student or workforce rentals – can take advantage of the scheme, as can someone renting out their main home for more than £4,250 a year.

It’s important to stress, however, that Let Property is not designed to be used by companies or trusts renting out residential property or anyone letting commercial property.

If you have any queries, it’s well worth discussing your position with your accountant who can deal with HMRC on your behalf.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk

When assets need replacing, there’s no need to sweat.

In many businesses, the key asset might be the knowledge and experience of the staff or possibly a valuable piece of intellectual property. Other companies, however, depend heavily on very specific capital assets. The presses used by a printer, for instance. The limousines of a wedding-hire firm. Or perhaps the fixtures and fittings of a gym. But what happens when these vital pieces of equipment or property start to deteriorate? The investment required to replace them can often seem daunting to a small or medium-sized business, particularly if they are already trying to manage existing financial repayments.

One option is to replace assets piecemeal, but very often that’s not the best solution. If you’re a hotel, for instance, your reputation might depend on a rating from the AA or RAC. Doing up your rooms on an ad-hoc basis over the next five years isn’t going to impress any inspector. And it’s a recipe for ongoing disruption and inconvenience for your guests.

Another solution is to work closely with your professional advisers to renegotiate and consolidate the terms of any finance. Draw up a wish list of everything you hope to do but are currently putting off. Then arrange a meeting with your bank at which you put forward a clear proposition.

While individual circumstances clearly vary hugely, it may well be possible to refinance over a sensible timeframe, meaning that there’s no obvious hit to the business on a month-by-month basis. There may also be a chance of negotiating a flexible loan which you can draw down over a period of, say, six or nine months as you require it – allowing you to keep careful control over costs and spend only what you need.

Of course, if you already have a qualified professional on your board, they may be able to provide valuable input. But don’t exclude the idea of involving your accountancy firm. By working in tandem, you’ll be able to make a more credible case to your bank. In many instances, it may be that your advisers will be happy to attend a meeting and answer some of the trickier questions that are likely to crop up during the discussion. It’s an added reassurance for the bankers. And it may be the start of a bright new period of business investment.

If you would like to discuss anything related to this article please do not hesitate to call Barnett & Turner on 01623 659659 or email Jonathan at jwilson@barnettandturner.co.uk