welcome to invest & develop: property update … · property development - vat. vat on property...

WELCOME TO INVEST & DEVELOP: PROPERTY UPDATE BREAKFAST

www.emwllp.com

Ian Warren Senior Lending Manager

NatWest London & South East Region

1 2

Stamp duty changes BREXIT

Building Regulations Declining High Streets

EPC’s Listed Property

New Tax Laws Slow Property Sales

Planning Rules Exchange Rates

Declining overseas investors

Access to Funding Health & Safety Regulation

Benefits Cap B2L Mortgage Regulation

FCA Governance Rent Arrears

Interest Rate Rises Valuations

3 1

How to approach a lender

Consider Location/Asset Quality

Consider Tenant Quality

Financial Information

Track Record/Experience

1 4

Where to get funds

Two Key Sectors

Development Funding and Property Investment

Development

• Traditional bank lending

• Crowd funding

• Bridging Loans

• Specialised Development Banks

5 1

Property Investment

• Residential

• B2L Mortgages

• Traditional Banks

• Alternative funders

• Bridging Loans

• Commercial

• Traditional Banks

• Alternative funders

• Bridging loans

6 1

How can we help you?

• We have 40 dedicated and accredited Real Estate Managers

providing local knowledge of markets, demand and projects that may effect your proposal.

• Experience within the sector, we know what we require and provide realistic guidance and assessment on what we can support.

• Fixed or Variable rate lending offerings. Fixed rate option with no penalty for early repayment or lump sum reductions.

• Interest only loan options for up to 5 years subject to portfolio

• Ongoing relationship management and direct contact – we are not a transactional lender.

7 1

What next?

Why not speak to one of my REF Manager colleagues or myself after the event and let us discuss your plans and needs.

I promise we will be honest and if we can’t

help, let you know where to go to for support.

Thank you for your time and attention.

8 1

LONDONBUY-TO-LETVOLU-TION_

SPRING 2017

02 / 20

LONDON’S BUY-TO-LET AGENT COMPLETING MORE THAN 40,000 TENANCIES OVER 20-YEARS

STEPHENLUDLOWEXECUTIVECHAIRMAN– stephenl@ludlowthompson.com

03 / 20

THE MARKET OPPORTUNITY– • Targeting key locations within Greater London’s commuter network.• Limited long term supply of residential property in London.• Demographic changes are driving London rental demand.• Significant capital investment is improving London’s transport links.

3.75% PER ANNUM GROSS YIELD ACHIEVABLE ON AVERAGE

04 / 20

LONDON’SUNPRECEDENTEDPOPULATIONGROWTH

05 / 20

LONDON’SEMPLOYMENT GROWTH–• Population grew by 800,000 between 2000-2012• ludlowthompson saw rent increases of 3–4% matching CPI & wage inflation• Population growth = rental growth• GLA suggest 11% population growth by 2023• 300,000 new jobs by 2020

06 / 20

A BALANCEDVIEW OF BREXIT–PMs Objectives+ Continue to attract the brightest and the best+ Seeking a reciprocal deal on residency rights

Versus- Impact on currency- Inflationary pressures- Real fall in wages- Falling rents- Rising Interest rates

07 / 20

BREXITSTRATEGY–• Long term tenancies + Provide hedge against inflation + Drive higher net yield • Fixed-rate mortgages + Visible net revenues + Provide hedge against rising base rate

08 / 20

LONDON’SECONOMYOUTPERFORMSREGIONS–Median hourly earnings • London – £15.70• UK – £11.21

REGIONALEMPLOYMENTGROWTH

SOUT

H WES

T0.0

%

HOUSEAFFORDABILITY–

60–70% 40–50% 50–60% 30–40%

09 / 20

SUPPLY& DEMAND–2016 MSCI Total Returns• Inner London 8.3%• South West Midlands & Wales 5%• Ludlowthompson recorded 10.1% total returns since 1999• Out-performing other assets on a risk adjusted return basis over 16 years

10 / 20

SUPPLY& DEMAND–London Mayor New Homes targets;

26,0002016

90,0002022

THEEFFECT2015-16LONDONRENTSGREW 2.5%

11 / 20

£8.5 BILLION TRANSPORT & CAPITAL INFRASTRUCTURE REVOLUTION TARGETED BY 2022–• Overground extension• DLR improvements• Crossrail• Cycle super highways• Public/Private Capital Infrastructure projects• 24-hour Tube lines from August 2016

12 / 20

01

02 03

0504

07

08

06

10

09

OUR CREDENTIALSOffices in all significant BTL neighbourhoodsWhere we trade...–

Majority target properties Significant target properties Minority target properties Outside target market

11

13 / 20

OUR CREDENTIALS–• 95% of our properties are occupied• Record-low industry arrears – less than 1.5%! • 22% Gross / Net Yields• Long term tenancies deliver 0.5 % higher net returns • ludlowthompson average 26 months

ludlowthompson> 1.5%

MARKET AVERAGE8.3%

ludlowthompson5 DAYS

MARKET AVERAGE22 DAYS

ARREARS VOIDS

2016 Q4

14 / 20

OUR SERVICESRENTCOLLECTION

• Advertise property online and conduct viewings• Organise tenant reference and contracts• Oversee tenant move-in• Collect rent and pay Landlord by BACS• Online portfolio management• Check-in and check-out management • Photographic report• Management of deposit• Serving and interpreting of legal notices• Legal and rental warranty • Right to rent checks

15 / 20

OUR SERVICESFULLMANAGMENT

• Rent collection service • Handle all tenant enquiries• Landlord complete anonymity• Provide a full maintenance service• Qualified and certified contractors• Conduct regular property inspectors and reports• Regulated Agent – ARLA/Ombudsman/London Rental Standard

16 / 20

NEWBUILD–BALTIMORE TOWERCROSSHARBOUR E14£675,000–£1,800 pcm Yield 3.2%

17 / 20

CONTEMPORARYNEW BUILD–ELITE HOUSETOOTING SW17£425,000–£1,350 pcmYield 3.8%

18 / 20

PERIODPROPERTY–RICHBORNE TERRACEOVAL SW8£475,000–£1,400 pcm Yield 3.5%

19 / 20

EX LOCAL AUTHORITY–ELMSLIE POINTLEOPOLD STREET E3£335,000–£1,400 pcmYield 5.1%

20 / 20

April 2017

Property Tax

Thomas Adcock, Tax Partner at CBW

Property tax

The taxation of UK property is heavily dependant on what is being done with that property

- Investments vs trading

- Development

- Construction

Property lifecycle

Three main stages:

1) Acquisition of property

2) Ownership

3) Disposal (sale)

Acquisition

When we buy a property we pay Stamp Duty Land Tax (SDLT), from 0% to 12%

However:

- Buying an additional property – additional 3% on the purchase price

- Corporate acquisition of residential property with a value in excess of £500,000 – 15% flat rate

Stamp Duty Land Tax (SDLT)

Residential SDLT rates:

Non-residential (commercial) SDLT rates:

Residential property or lease premium or transfer value SDLT rate

Up to £125,000 0%

The next £125,000 (the portion from £125,001 to £250,000) 2%

The next £675,000 (the portion from £250,001 to £925,000) 5%

The next £575,000 (the portion from £925,001 to £1.5 million) 10%

The remaining amount (the portion above £1.5 million) 12%

Reduced rate for:- Six or more dwellings in one

transaction, or - For non-residential or mixed

use

Non-residential property or lease premium or transfer value SDLT rate

Up to £150,000 0%

The next £100,000 (the portion from £150,001 to £250,000) 2%

The remaining amount (the portion above £250,000) 5%

Taxes involved in property ownership

Two main taxes involved when owning a property:

1) Corporation Tax (19%) vs Income Tax (47%)

2) VAT

Ownership

Investment property

- Pay Income Tax and Corporation Tax on rental profits

- Income Tax only – restriction on interest relief for higher rate tax payers

Accounts Old rules New rules

Annual Gross RentalReceipts

30,000 30,000

Expenses 2,000 2,000

Mortgage interest 10,000 10,000

(12,000) (12,000)

Net profit before tax 18,000 18,0000

Income Tax (7,200) (9,200)

Profit after tax 10,800 8,800

Capital repayments (10,000) (10,000)

Net annual cash position 800 (1,200)

Tax calculation Old rules New rules

Profit per accounts

18,000 18,000

Add: mortgage interest

10,000

18,000 28,000

Income Tax(40%)

7,200 11,200

Tax reducer for interest (20%)

(2,000)

Total tax due 7,200 9,200

Corporate ownership

Why use them:

- Liability protection

- Financing

- Tax

Tax benefits:

- Corporation tax benefit – current rate 19% and falling to 17%

- Full interest relief (even if intention is to let)

- Can sell shares - SDLT benefits for buyer and potential Capital Gains Tax (CGT) advantages for seller

- Non-residence – no tax? – NRCGT, ATED CGT, anti-avoidance

Incorporating rental business

- CGT on deemed disposal on incorporation – incorporation relief due in limited circumstances

- SDLT on market value on incorporation even when no consideration paid – however, full relief from SDLT due where partnership incorporates

- Pre-transaction clearance not available from HMRC

Property development - VAT

VAT on property developing is very complex

- Any supplies in development are standard rated at 20% unless…

- New build residential: 0%

- Conversions: 5%

Sale of new build residential property: 0%

- VAT can be recovered in full where there is a first grant of major interest in land (sale or lease in excess of 21 years)

- Supply of residential property is always exempt accept the sale of a new build

Disposal

Investment property disposal

By individual = CGT of 28%

By company = CGT of 19%

Trading property disposal

By individual = CGT of 47%

By company = CGT of 19%

What to do next

The most important thing to do is to get advice on the taxes involved in:

- Acquisition

- Ownership – development as well as rental

- Disposal

www.cbw.co.uk/services/property/

Thomas Adcock

THOMAS ADCOCKTAX PARTNER

t: +44 (0)20 7309 3856e: thomas.adcock@cbw.co.uk

Focussed on ensuring his clients fully appreciate the tax implications of their decisions, Thomas is particularly valuable in times of change – for completing property deals, the re-structuring of organisations, establishing new entities and for all M&A activity.

Experience

• Advised a UK resident non-domiciled individual on how to structure their affairs to enable the purchase of UK property in a highly tax efficient manner

• Saved an international client millions of pounds in EU intra community VAT – which ultimately saved the business from bankruptcy

• Advised on an international structure that helped make significant investments in UK business without the client being overly exposed to UK tax

Areas of expertise

• Property tax• VAT• Tax planning for owner managed

businesses• Non-domiciled UK tax residents• Maximising shareholder return• International tax planning for

multinational businesses• Non-UK structures supporting

inward investment

www.emwllp.com

Energy Efficiency (Private Rented

Property)(England and Wales) Regulations 2015

aka MEES

Alex Miller Principal

www.emwllp.com

The need to legislate

• Increasing population has led to increased energy consumption

• Effect on environment

• Increasing energy costs

• Commercial buildings contribute 20% of the UK’s carbon footprint

www.emwllp.com

Background

• Energy Performance of Buildings (Certificates and Inspections) Regulations 2007

– From October 2008 EPC’s required for all commercial buildings from the first day of marketing whether for sale or to let

• Energy Act 2011

– Placed the UK government under an obligation to introduce measures to improve energy efficiency of domestic and non-domestic private rented buildings

• MEES Regulations 2015

– Biggest impact on commercial private rented

– Landlord to ensure that rented property reaches a minimum energy efficiency standard before the property can be let

www.emwllp.com

Key points

• F & G rated is the primary concern (about 20% of all commercial property)

• From 1 April 2018 – applies to the grant of a new tenancy, extension or renewal of existing tenancy

• From 1 April 2023 – landlords will be prevented from continuing to let

• No positive obligation on a landlord to carry out improvement works

• Penalties for non-compliance

• “Naming and shaming” register

www.emwllp.com

Which property and transactions will be caught?

• Commercial properties being let unless: – No EPC required in any event

– Short term lettings (=< 6 months)

– Long term lettings (=> 99 years)

• Exemptions – Consent

– Devaluation

– Temporary

– Payback

www.emwllp.com

Who will be affected by MEES

• Landlords

• Tenants

• Investors

• Lenders

• Developers

www.emwllp.com

Landlords, Tenants and Leases

• Improvement works

• Costs of improvement works and service charges

• Future dealings

• Alterations

• Reinstatement

• CSR and reputation

• Asset value

www.emwllp.com

Investors, lenders and developers

• Effect on rental income streams

• Funds are already reviewing portfolios

• Qualifications on lending

• Impact on reputation and marketing

www.emwllp.com

What can you do?

• EPC audit

• Existing leases

– Review documentation now

– Consider getting an updated draft EPC

– Don’t let Tenant obtain a new EPCs

• New leases

– Carefully consider language in leases

– Be clear about intentions at HoT stage

• Opportunities on renewal and break

www.emwllp.com

The information contained in this presentation is for general information purposes only and should not be relied on in isolation without seeking further legal advice specifically applicable to your circumstances.

For more information please contact Alex Miller on 0345 074 2343 or email

alexandra.miller@emwllp.com

Thank you