WELCOME 

UK Property Taxes 

Context 

• Commercial

• Residential

VAT

 

Commercial property only

TOGCs

Mansion tax?

  

£2m threshold

£2m – 3m - £3,000 p.a.

Over £3m - £28,000 p.a.

ATED 

£1m threshold

£500k from April 2016 

£1m – 2m - £7,000 p.a. £2m – 5m - £23,350 p.a. £5m – 10 m – £54,450

£10m – 20 m - £109,050 over £20m – £218,200

 

50% increase – causing problems for historic ownership structures

ATED Conditions

• UK residential property

• “non-natural person”

Not acting as nominee or trustee

ATED Exemptions

Commercial letting to third parties

Development and re-sale

Not occupied by a connected person

Returns must be submitted and reliefs claimed within 30 days of completion

Why was ATED introduced?

Advantages of “non-natural persons” –

Avoids stamp duty land tax on sale

Avoids inheritance tax (non-doms only)

Stamp Duty Land Tax

Introduced in 2003

No more “resting on contract”

4 December 2014

Rates up to 12% (over £1.5m) for residential property

Multiple dwellings relief

Commercial property SDLT

4%

Purchase of 6 or more dwellings

15% SDLT

UK residential property

Non-natural person

Over £500k (originally £2m)

Exemptions as for ATED

Inheritance Tax

40%

Nil-rate band

£325,000 (transferable)

£1m nil-rate band?

Non-doms

IHT Planning

GWR/POAT

Gift shares in rental properties while retaining income?

Keep assets separate to avoid GWR

Capital Gains Tax

Previously only applied to UK residents, except for:

Temporary non-residents

Non-residents liable for ATED related gain

Non-residents now liable to CGT on UK residential property

Individuals, “close” companies and trusts

Gains from 5 April 2015

Valuations

Returns within 30 days of sale

Private residence relief – new 90 days rule

Rental Property

Individual

Corporate

BIM 45700 (individuals only)

Property

Sound Portfolio Investmentor

Overvalued Asset Class?Matthew Hunt

June 2015

18

Returns from property – the historical perspective

Valuation of property – cheap or expensive?

The market environment – supply and demand

Investment strategy

Agenda

19

Property Total Returns 1983 – 2015: Beware the Cycle

-15.0

-10.0

-5.0

0.0

5.0

10.0

Q1 1983

Q1 1986

Q1 1989

Q1 1992

Q1 1995

Q1 1998

Q1 2001

Q1 2004

Q1 2007

Q1 2010

Q1 2013

% R

etur

n

Source: IPD

Worst 12m : -27%Best 12m : +30%Average : +7.8%

20

Commercial Property Returns – A Rollercoaster Ride

-40

-30

-20

-10

0

10

20

30

40

50

60

2000 2002 2004 2006 2008 2010 2012 2014

%Rolling 12m Total Return

Property

Source: IPD

21

Bonds Have Less Downside

-40

-30

-20

-10

0

10

20

30

40

50

60

2000 2002 2004 2006 2008 2010 2012 2014

%Rolling 12m Total Return

Property

10 yr Gilt

Source: IPD, Reuters

Correlation to Gilts: -0.2

22

Equities Have More Upside

-40

-30

-20

-10

0

10

20

30

40

50

60

2000 2002 2004 2006 2008 2010 2012 2014

%Rolling 12m Total Return

Property

Equities

10 yr Gilt

Source: IPD

Correlation to Equities: 0.5

23

UK Asset Class Valuations – Property 4% Range

0

1

2

3

4

5

6

7

8

9

2000 2002 2004 2006 2008 2010 2012 2014

%Income Yield

Property

Source: Bloomberg

24

UK Asset Class Valuations – Beware the Crossover

0

1

2

3

4

5

6

7

8

9

2000 2002 2004 2006 2008 2010 2012 2014

%Income Yield

Property

10 yr Gilt

Source: IPD, Reuters

25

UK Asset Class Valuations – Property Relatively Attractive

0

1

2

3

4

5

6

7

8

9

2000 2002 2004 2006 2008 2010 2012 2014

%Income Yield

Property

Equities

10 yr Gilt

Source: IPD, Reuters

26

UK Transaction Volumes Rising as Confidence Grows

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015£0

£10

£20

£30

£40

£50

£60

£70

0%

10%

20%

30%

40%

50%

60%

Transaction volumes Q1 Q2 Q3 Q4 % in Central London

Bill

ions

GB

P

Source: IPD, M&G

27

Limited Construction Supports Rental Growth

Completions by sector, excluding industrials (million sq ft): 1986 - 2017

Peak

Off

ice

s

5.2(2011)

28.2(1991)

Lowest

Re

tail

Wa

reh

ou

sin

g

15.3(1989)

1.7(2010)

Avg.4.5

2.3

2016

2.5

2015

2.3

2017

9.3

2016

6.7

2015

9.8

2017

Avg.11.6

Source: M&G

28

Prime vs Secondary: Yield Gap Now Contracting

4.0%

5.0%

6.0%

7.0%

8.0%

9.0%

Yie

ld

Prime shopping centres Good secondary shopping centres

Rising yield gap Stable yield gap Falling yield gap

Source: M&G

29

Offices: Regions Catching Up London

Rental Growth Slowing

Rents falling

Rents bottoming out

Rental Growth Accelerating

Manchester

City

Edinburgh, Glasgow

Thames Valley, Bristol

Birmingham, Leeds

West End

Source: M&G

OPEN-ENDED FUND

Direct exposure to cycle

Management added value

Liquidity constraints

Cash drag

Risk of lock-up

Specialist funds available

CLOSED-ENDED FUND

Premium / discount to NAV

Management added value

Benefit / risk of leverage

Reasonable liquidity

QUOTED EQUITY

Premium / discount to NAV

Development potential

Benefit / risk of leverage

Good liquidity

30

Different Types of Property Investment

31

Different Investment Strategies: Leverage = Volatility

0

20

40

60

80

100

120

140

160

180

2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

FTSE 100

IPD Index

Closed Fds

Open Fds

Quoted

32

Property is volatile and cyclical

Property valuations remain attractive

Financing availability is supporting demand

Supply is limited and is driving up prices

Rental income is rising

The cycle is well advanced in London, beginning in regions

Choose your investment vehicle carefully

Conclusions

33

“The information in this document is believed to be correct but cannot be guaranteed. Opinions and forecasts constitute our judgment as at the date of issue and are subject to change without notice. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. Before contemplating any transaction, you should consult your financial adviser.

The research and analysis in this document have been procured, and may have been acted upon, by

Prospect Wealth Management and connected companies for their own purposes, and the results are being made available to you on this understanding. Prospect Wealth Management, its clients, officers and connected companies may have a position, or engage in transactions, in any of the securities mentioned.

Neither Prospect Wealth Management nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such research and analysis. Past performance is not a reliable indicator of future results. Forecasts are not a reliable indicator of future performance.”

Prospect Wealth Management (PWM) is a trade name of Raymond James Investment Services Limited (RJIS) utilised under exclusive licence. RJIS is a member of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority Registered in England and Wales number 3779657 Registered Office 77 Cornhill London EC3V 3QQ

Risk Warning