Last week we had an event in Harrow, in regards to the new tax scheme which is currently being phased in. The event was popular and fully booked. I even had calls from a few people who were hoping to use me to gain entry from the back door to the event. Not surprising, given it was about what everyone is concerned about, which is tax.
Everyone is seeking a way to minimise taxation to save money. The conclusion of the evening was, in a nut shell, there is nowhere to hide. The terrain has changed and who knows, could get worse in time. It’s not as though the funding gap will close anytime soon. Barrister’s opinion was, if the schemes you’re being introduced to are too good to be true, they probably are. Whilst this statement is not absolute for all time and places, it is probably correct in this scenario, given the new landscape we are facing. The seminar lasted for a good few hours, mostly re-emphasising the message of operating within the rules.However, one point which was not focused on was the Entrepreneurs Relief which is available to property traders. The Entrepreneurs Tax Relief is available on the gains made by selling the shares of a company. The tax payable is only 10% as long as it is qualifying and is extracted as a personal capital gain by selling the shares in the company rather than the asset itself. The company needs to be held for more than 12 months and the investor needs to be a director in the company. There is also a lifetime limit of £10m. That being the gross amount you are taxed on, not the tax; in other words £10m of gains. This wraps nicely around land investments. The value of land increases with a change in its utility. Two pieces of land may look the same, one will have an increased value because you are allowed to build upon it and the other one is only for agricultural purposes. Changing from one to the other requires a great deal of professional expertise, and a deep understanding of how the planning process works.When you manage to transform the utility of a piece of land, its value jumps massively, and will probably be the largest gain you can make in property investment, within a relatively short time period. The process is almost alchemical. Ironically, the tax applied here is the least, at only 10% of the gain. In general, it is far more efficient to make profits in respect to capital gains rather than income, as capital gains is much lower than extracting income as dividends or employment income. 20% is the capital gains tax when selling shares. So, if you hold the land in a company, and sell the company, you are selling shares and thus are taxed at 20% and not 40%, 45% and more with national insurance. This being said, please do consult a tax expert about your particular circumstances.The point was made at the end of the seminar that the tail should not wag the dog. This means that the least important part of a situation should not have too much influence over the most important part.In this context the tax saving should not drive the investment. The point being that if you allow the tax end to lead too much, you may end up going into a deal that makes no money and thus you have no tax to save anyway. However, in the situation with land deals, the focus is solely on getting the highest gains in the shortest time period. It just happens, currently, we have a chink of light shining at us though the new wall of tax, which is slowing being built around us. It’s time to take advantage of this situation, because it’s both lucrative and legal. ———————————Agony Agent Is Here To Help!Q: My tenant’s six month tenancy ends in two weeks, and they owe me six weeks’ rent. They have also damaged the property. I want them to be evicted as soon as possible, but how do I get my money back?A: As there is damage to the property, it makes sense that you claim for possession of the property immediately. But if you want to recover the outstanding debt, then you need to show that you’re acting reasonably and calmly (try not to threaten them). I would recommend speaking to the tenant fully about their circumstances, and trying to help them resolve the situation (e.g. by helping with a benefit claim or repayment plans). Do act swiftly to make sure that your tenant realises that you’re serious. Send a formal reminder letter weekly. Send him/her a schedule of the rent arrears, outlining what is due. This will act as good evidence, in case you end up in court.Afterwards, you can then use the following eviction procedures:1. Section 8 eviction procedure, which includes a money claim for rent arrears2. Section 21 standard procedure (where you need to attend court)3. Section 21 accelerated possession procedure (where you don’t need to attend court, if your paperwork is correct)Using the Section 8 notice may be the quickest course of action. By serving the Section 8 notice, you're giving the tenant 14 days’ notice, and after this ends, you can apply to the County Court for a possession order, as well as a CCJ (debt judgment). The downside of using a Section 8 is that unless the arrears are of two months or more, the possession order is granted on the judge’s discretion. There is also the possibility of a late part-payment, and the tenant can counterclaim for the property’s alleged disrepair.With the Section 21 notice, you should serve this immediately, so it acts as a safety net in case the tenants don’t leave at the end of the tenancy. Although it will take longer to obtain the possession order, you’re guaranteed to get it if you follow the correct procedure. With the standard procedure you can also add a money claim, but you may need to wait a month or two longer for a court hearing date than if you used the accelerated possession procedure. This shouldn’t be a problem, as you won’t be able to assess the extent of the money claim until the tenant has left the property.So, the best course of action (based on the surface information provided here) seems to be as follows:1. Serve a Section 21 notice immediately, making sure that the service is correct and that you have evidence of serving the notice properly.2. If the tenant shows no sign of leaving at the end of the tenancy, apply to the court for a possession order using the accelerated possession procedure as soon as the notice period finishes.3. Once the tenant has been evicted, assess the damage caused, and calculate your money claim.4. Pursue the money claim from (1) any deposit protected in a tenancy deposit scheme; and (2) by using the Small Claims Court (for amounts up to £5,000).When making a claim using the Small Claims Court, do make sure that you have evidence of the following:1. Rent schedule2. Bank statements showing missed payments3. Inventory showing the extent of the damage, plus quotations and invoices for repairsPlease do be aware that each situation is different, and therefore I would need to have all the information to hand, before giving any advice on eviction strategy. If you need more information, please do get in touch.