Currently, we are in the process of bidding for a site. Here, the issue is not one exclusively based on price and performance. If it was, it would be easier. Here, we’re being tested for construction knowledge, execution of the project and our past history of development, in particular examining niche issues which this development would entail. As time goes on, both doing developments and investing in property is becoming more complex. The environment is becoming complicated. To the average person it is becoming a headache to understand how the current taxation environment will impact your investment and to understand which wrapper - if any wrapper at all - is best for your circumstances. And then, once this is done, to see how this will impact lending.
To understand tax, you need to see how the effects of CGT, Income Tax and Inheritance Tax will impact your investment. And then there’s the exercise for those who have an existing portfolio. By portfolio I mean even a few properties. Holding this in a personal name is now becoming a serious issue. Transferring to a Ltd company means there will be CGT and stamp duty payable, this has to be weighed against the potential savings from the other side over a period of time; and to top it all off the lending needs to be taken into account.
It’s no wonder people are getting confused. When they approach an expert they are often given one dimensional advice, which does not consider the whole issue holistically. So, they then approach another expert who gives differing advice. In addition to this, there are caveats in place to say this advice is not fool proof, so the recipient then ends up having very little or no confidence in the advice they have been given.
The structure within which the investment is made is now becoming increasingly important. It’s not just a question of making money, but what shape this money is in. Recently, we had an investor who wanted to buy a property in W2, it was around the half a million range. Simple enough, so you would think. The trouble is, he’s a high band tax payer. Therefore, it makes sense to purchase it in the wife’s name. However, she does not have an income. The wife cannot get a mortgage, not even as a BTL, as there is no income to show. BTL lenders need a basic rate of about £25k per annum to qualify for a BTL mortgage.
We had to arrange a conference call with an accountant and the mortgage broker to come up with a workable solution. The solution ended up being that the property should be purchased in a SPV (Special Purpose Vehicle), this means a Ltd company which only holds the asset. The shares are held by the high rate tax payer, with the wife becoming an employee of the company. This will also make the transition of ownership from the parents to the next generation smoother, in the future. It’s vital now to ensure the way property investment is done is looked at from a variety of angles, and it is entered into with a 360 degree vision.
Agony Agent is here to help
Q: I have had a great couple living in my property for the last few years, however, they have recently split up. Should I do anything about this?
A: There are a couple of points that I would recommend. First of all, don’t get involved. Break-ups can be very messy, and as much as your tenants would love to get you involved in the split, don’t. It is not your place to do so. Stay professional and impartial. This may sound like cold-hearted advice, but you need to protect your business. You rented your property to responsible adults, and have no responsibility beyond this. Often the case is that if they can drag you into their dispute, then they will. Just stay out of the way and find out what the tenants want to do. If they want to stay on you may want to change the tenancy agreement. If you do choose to change the tenancy agreement, then you will
have to refund any deposit taken and ask for a new deposit, which you’ll then have to re-protect. Please don’t miss out this step. It is very important to ensure any deposits taken from tenants are protected in one of the Government approved tenancy deposit schemes.
If you think the tenant who wants to stay can’t afford the rent on their own, be careful, as once a new agreement has been signed in just one tenants name, you have no legal right to chase the former tenant for rent. Your only course of action would be to give notice using a Section 21. If they both want to leave, then you can accept notice from them, and end the tenancy in the normal manner. If there is still a fixed term to wait out, then you may still have a legal right to the rent. You might want to negotiate with the tenants on this point, as your new focus should now be on getting new
tenants in.
If there is a history of rent arrears, or persistently late rent payments, with them as a couple, then as singles they won’t be any better! It may just be best to end the agreement now, and they both leave. Whatever you do, always keep the lines of communication open between you and your tenants, just don’t get involved in the “he said she said”. Remember, you are not the only person that this has happened to, many landlords have got through this, even when that they have become a part time therapist! Although I do not have any couples therapy experience, I am an experienced Lettings Manager and I am more than happy to take over this situation and see it through, if it is becoming too much for you; or at the very least, offer a helping hand.
Richard Bond
Lettings Manager
Sow & Reap
