buying and investing in the london property market
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We look at buying and investing in the ever expanding London property market.TRANSCRIPT
Buying and investing in the London property market
Presented by
Sophie Shaladi
William Bethune
John Spence
Michael Culver
Darrell Webb
Today’s Topics Things to consider when buying or selling an investment property
Lease Extensions & Enfranchisement
Tenancies & Problem Tenants
Taxation & Estate Planning – Inheritance Tax, Domicile, Wills
Marriage Agreements
WE CANNOT GIVE FINANCIAL ADVICE OR ADVICE ON THE PROPERTY MARKET.
Things to consider when buying or selling an investment property
Sophie Shaladi
DD 0207 288 4798
The BasicsWHY?
Why are you investing?
Capital Growth vs Rental Yield (Net Rent / Property Cost)
Annual Outgoings e.g. Insurance, Maintenance, Service Charges, Void Periods
Purchase Considerations
Points to think about when searching for property:
Where is the property located?
Is there a ready supply of the ‘right’ tenants?
What is the rental market like in that area?
Buy to Let Mortgages
Legal Points Does the lease prohibit letting or are there
fees payable?
‘Single Private Residence’
Renting rooms – House of Multiple Occupation
Selling Your Property Capital Gains Tax
Selling with the tenants still at the property
Getting your tenants out...
Managed or Self-Managed?
Different levels of letting arrangements
Percentage of the monthly rent taken
Who maintains the property?
Dealing with the ‘admin’
Lease Extension and Enfranchisement
William Bethune
DD 020 7288 4743
FREEHOLD PROPERTY:
• Is the highest class of property ownership in England and Wales.
• You own the building and the land upon which it is built
LEASEHOLD PROPERTY
• Comprises of an estate in land subject to a predetermined period of ownership. Most flats are leasehold and will involve payments of ground rent and service charge to the landlord.
• Typically for a term of 99 – 999 years. As the lease starts to decrease so too does the value of the property. Leases with less than 80 years left are difficult to sell and buyers are reluctant to consider these.
Freehold and Leasehold
• A Lease extension – Statutory or Voluntary
• An application for Collective Enfranchisement
• Do nothing – You may simply decide to do nothing. You may have plans to sell the property in the future but be cautious. By doing nothing you seriously undermine the value of your estate and may give yourself a headache on sale.
What are my options?
• The 1993 Leasehold Reform Housing and Urban Development Act provides a statutory framework in which to extend your lease. Under the legislation you will automatically become entitled to a lease extension of 90 years in addition to the unexpired term. The ground rent will be reduced also to a peppercorn (nil).
• To qualify under the 1993 Act you need to have owned the property for a period of 2 (two) years. Ownership is determined by the date of registration with the land registry.
• The right to extend the lease can be assigned by a qualifying lessee. This means that you can purchase a flat and enjoy the benefits of the rights created by the Act without waiting 2 yrs.
Statutory Lease Extension
• The 1993 Act as well as providing a statutory framework to extend your lease also provides for the acquisition of the freehold reversion. The purchase of the freehold is often referred to as “Enfranchisement” and you may also see property being marketed with a “share in the freehold”.
• To qualify for collective enfranchisement there must be at least two flats in the block with long leases. A claim can be made to acquire the freehold by at least 50% of the leaseholders joining together. The benefits are significant and range from self determination of service charge issues to extending your leases.
Collective Enfranchisement
Important points
• A lease is a wasting asset, the shorter it gets the less the property is worth
• When the lease drops below 80 years remaining you have to pay an additional sum to the landlord to extend or buy the freehold
• Leases with close to 80 years or less are harder to sell and mortgage
• If purchasing a ‘short lease’ make sure the seller will assign you the right to extend
• For a guide to what a lease extension would cost see our calculator on our website: www.boltburdon.co.uk/private-clients/enfranchisement
Avoiding problems with tenancies: My 5 top tips
1 Choose your tenants carefully
2 Have a good written tenancy
3 Protect the deposit
4 Respond quickly to tenants’
breaches
5 Serve the correct termination
notices
TIP 1: Chose your tenants carefully
Make certain you or your letting agents carry out vetting and credit checks using services such as Experian tenant screening to search the prospective tenant’s credit history, and see if they have any Bankruptcy Orders or County Court Judgments.
Obtain copies of the prospective tenant’s bank statements and arrange for rent to be paid by standing order or direct debit.
Request references from the prospective tenant’s current landlord, employer, bank etc.
Ask where possible for a guarantor such as a parent or employer to be made a party to the tenancy agreement and carry out the same vetting and credit checks on them.
TIP 2: Have a good written tenancy
Use a properly drafted Assured Shorthold Tenancy agreement.
Make sure the main terms of the tenancy are clear as to the length of term, rent, rent periods and payment dates, and repairing obligations.
Check the tenancy incorporates all the termination provisions set down in the Housing Act 1988 which makes it easier to terminate the tenancy later on.
TIP 3: Protect the deposit
Make sure you or your agent protects the deposit with one of the three main authorised tenancy deposit protection schemes: The Deposit Service, Tenancy Deposit Scheme or My Deposits.
Serve the correct prescribed information notices upon the tenant within 30 days of receipt of the deposit.
Best practice is to re-register the deposit and re-serve the prescribed information when renewing fixed term tenancies or when a tenant holds over as a statutory periodic tenant (Superstrike v Marino Rodriguez).
TIP 4: Respond quickly to tenant breaches
If a tenant misses a rent payment, contact them quickly to find out what is happening and do not let arrears accrue.
If the tenant’s breaches are serious, then you or your agent should serve a termination notice.
Keep a record of all your letters, emails and calls to your tenant to ensure you have a paper trail in the event you have to take your tenant to Court or use a dispute resolution service provided by a tenancy deposit protection scheme.
TIP 5: Serve the correct termination notices
At the end of a fixed term Assured Shorthold tenancy, the tenant is entitled automatically to hold over as a statutory periodic tenant under the Housing Act 1988.
To end an AST, you must serve the correct form of notice under Section 21 of the 1988 Act giving the tenant the requisite minimum 2 months’ notice ending on the correct date depending on whether or not the AST is still within the fixed term or has become a statutory periodic tenancy.
You cannot serve a Section 21 Notice if a rent deposit was not protected properly.
You can serve a separate type of notice seeking possession under Section 8 of the 1988 Act during the fixed term provided your tenancy agreement provides for this.
If a tenant refuses to vacate then you must obtain a Court possession order.
Taxation & Estate Planning – Inheritance Tax, Domicile, Wills
Michael Culver
DD 0207 288 4741
Declarations of Trust
Property ownership agreement Sets out:
Beneficial ownership Legal title Beneficial ownership - percentages
Return of initial deposits Rights of pre-emption Parents loaning money Contribution to bills, mortgage payments etc
Tax Considerations: Investment Property
Income Tax
• Rental Income – use lowest rate income tax band – declaration of trust
• Interest on mortgages are tax deductible – repayments are not
• Deduct all expenses
Tax Considerations: Investment Property
Inheritance Tax
• Primarily a tax on death but can be charged on Lifetime gifts
• Nil rate band (NRB) £325,000 fixed until 2015• Anything over and above – 40% tax• Rental Income – gift of surplus income – strict rules –
records needed• Be careful of “Gifts with Reservation
of Benefit” (GROB)
Tax Considerations: Investment Property
Capital Gains Tax
• When sell or ‘dispose’ of an asset• Deduct costs & losses from previous years• Annual allowance £11,000• Transfer a share to someone to make use of x2
allowances• Taxed at 18% or 28% depending on your income tax
rate• Last 18 months of ownership are ignored • Changes April 2015 – removal of election
Funding your Purchase
How will you fund the purchase?
Gift from family? “Potentially Exempt Transfer” (PETs)? Term assurance
Mortgage Tax deductable so may be preferable to a cash purchase
Life cover - written in trust
Cash buyer No tax deduction for income tax
Purchasing in UK but non-dom?
Succession and inheritance tax in the UK is based on ‘domicile’ rather than residency.
Domicile is a complex area and has implications for: Inheritance tax
17-20 tax years If non dom, UK assets taxed If dom – worldwide estate taxed
Capital gains tax April 2015 – non doms subject to it No election for non doms
Succession of assets on death Get specialist advice and prepare Wills in both countries.
Protecting your investment
Ownership in sole name
Declaration of Trust
Joint with third party
Marriage Agreement
MARRIAGE AGREEMENTS
Pre-nuptial Agreement – must be entered into not less than 21 days before the marriage.
Post-nuptial Agreement – can be entered into at any time after marriage.
COMMON MISCONCEPTIONS
‘Not worth the paper they’re written on’
‘They’re totally ignored by the Courts’
‘Absolutely no point in having one’
‘A complete waste of money’
THE FACTS
Radmacher v Granatino [2010]“The Court should give effect to a nuptial agreement which is freely entered into by each party with a full appreciation of its implication, unless in circumstances where it would not be fair to hold the parties to the agreement.”
(1) FREELY ENTERED INTO
Timing – The agreement should be signed not less than 21 days prior to the marriage.
Importance of agreement – Would the parties have married without the agreement?
Personal circumstances, duress and undue pressure – are there any warning signs.
(2) WITH A FULL UNDERSTANDING OF THE IMPLICATIONS
Independent Legal Advice – The parties must understand the terms and legal effect of the agreement.
Disclosure – Full and frank financial disclosure should be provided.
Negotiation – It is important that the parties had the opportunity to negotiate the terms of the agreement.
(3) FAIR
Non-Matrimonial Property – there is nothing inherently unfair in distinguishing between wealth accumulated during the marriage and pre-marital property or property that one party expects to receive from a third party.
Children – the agreement cannot prejudice the reasonable requirements of any child of the family.
(3) FAIR CONTINUED...
Need– the agreement should not result in one party being left in a predicament of ‘real need’
Changing Circumstances – the agreement should as far as possible plan for future changes in the parties’ circumstances.
Generally – the parties views as to what constitutes a ‘fair’ division of assets on separation will be important, particularly where they address existing circumstances.
City lawyers for city people – with more than 25 years experience working in the City you can be confident that you’re in safe hands.
A ‘one stop shop’ for all your legal needs – there’s no need to go anywhere else, we can deal with all your legal needs.
Flexible appointments – we understand that it is not always possible to visit your lawyer during working hours. We therefore offer flexible appointments to work around you.
Office visits – if you can’t come to us, we’ll come to you.
Direct contact – you can call or email our lawyers direct.
Fixed fees – we charge fixed fees, so you know exactly what the cost will be from start to finish.
Why Bolt Burdon?
Bolt Burdon Solicitors Please contact us with enquiries:
Sophie Shaladi - ConveyancingE: [email protected] T: 020 7288 4798
William Bethune – EnfranchisementE: [email protected] T: 020 7288 4743
John Spence – Property DisputesE: [email protected]: 020 7288 4788
Michael Culver – Tax planningE: [email protected] T: 020 7288 4741
Darrell Webb – MatrimonialE: [email protected]: 020 7288 4795