To gain or not to gain?

Wednesday 30th January 2019 06:18 EST

The current environment is extremely tight in terms of taxation. Gone are the days of creative taxation strategies and stamp duty mitigation schemes. We have come across a few clients who have used these schemes in the past. The traumatic experience of the aftermath has left them as deeply scarred and bitter individuals. Of course, now they would not touch any scheme with a barge pole. It’s not just the scheme which gets investigated, but your whole affairs. The laws are arranged so that even if you comply with the letter of the law but not the spirit you can be held to task. Now there is a difference between such ‘schemes’ and government offered relief; legitimate in letter and spirit.

There are a few gems in the current environment which often go unnoticed, mostly due to lack of proper and holistic advice from the outset. Instead you have a reactionary response as the deal progresses and fructifies; the problem is you cannot unwind past events. Now, it is not the gain you must consider from investing in property, but the Net Gain, i.e. how much actually goes into your pocket. Even in the scenario of buying a single BTL property the structure needs to be thought out.

One such diamond is Entrepreneurs’ Relief, which you may qualify for when you’re selling the shares of a company after holding them for more than a year. This does not apply to the asset itself but to the company holding the asset. The company is known as a Special Purpose Vehicle or SPV for short. This is particularly useful for when you purchase an asset, get the planning and then sell on. The tax you will pay on disposal of the shares which own the underlying asset is only 10%. There are some administrative rules which one needs to comply with, but nothing prohibitive. The bottom line is under the current UK taxation environment one can still make a capital gain and only pay 10% in tax subject to the criteria being met.

Another gem is the EIS, which stands for Enterprise Investment Scheme. There are some very interesting benefits with this scheme. In essence, you’re able to invest in a company and have your down side almost fully protected, by offsetting them against current and future tax liabilities.

You will need to hold the shares for at least three years to qualify for the tax breaks, but the gains you will make will be totally tax free, even better than the last one. There are also some interesting savings to be made around stamp duty. No schemes, but using the existing legislation. Though the legislation is available in plain sight it is little known. We have used them for clients, and both times we had a job in educating the solicitor involved. One relief is the multiple dwelling relief. This is applicable when you purchase a freehold building with multiple units in there. You do not pay tax on the price you purchase at but on the rate applicable to the average price of the unit. In one situation this saved our client £44,000 in stamp duty, where ordinarily the solicitor would have requested the client to pay it.

Currently, we have a couple of deals on the table for which the above schemes can be used for. So, you can benefit from the Entrepreneurs’ Relief and EIS. Remember it is the Net Gain you need to keep your eye on and not what you appear to make.

Agony Agent is here to help!

Q: How do I ensure the shared spaces in my HMO are kept clean?

A: If you have an HMO you may know the struggle of keeping the common areas in good condition, as whenever you find them in poor condition, you will find that the mess is always someone else’s! Nobody will accept responsibility. Now, unless you have amazing tenants that look after the shared areas without being asked to, which is not very common, the best way to deal with this situation is to make them your responsibility from the very start.

I would recommend that you have the property cleaned weekly (professional cleaner recommended), on the same day each week. You should ask the cleaner to feedback the condition of the property to you every week. I would recommend that you also have a sign off sheet which your cleaner should sign at the property after each visit, so you know they have been and what areas have been cleaned. This would also serve as a great visual reminder for the tenants to keep these
areas clean.

Always ensure your property is kept to a high standard of cleanliness, as you want to avoid rats or mice making themselves at home; otherwise you will have a whole new problem to contend with. If you need any other HMO or BTL property guidance, please do get in touch. 

Richard Bond

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