Extra Stamp Duty Costs ‘Failing to Deter Landlords from Buying Up Properties’

Extra Stamp Duty Costs ‘Failing to Deter Landlords from Buying Up Properties’

The stamp duty levy introduced almost two years ago by the government in an effort to limit the growth of buy-to-let property ownership in the UK has not yet had the desired effect.

According to analysis of official data, the government’s decision to add 3 per cent to stamp duty charges has only had the effect of significantly increasing HMRC takings in recent quarters, rather than reducing the appetite for buying properties among investors and landlords.

The government’s extra stamp duty levy has been dubbed the “landlord tax” and was announced as official policy during the chancellor of the exchequer’s 2015 Autumn Statement.

The apparent intention of the policy was to provide a disincentive for landlords against buying multiple properties in ways that can ultimately make it more difficult for first-time buyers to make their way on to the housing ladder.

However, in practice, the disincentive seems to have had little impact and is instead understood to have lead to roughly £2 billion more being paid as stamp duty to HMRC during 2016-17 as compared with the previous 12 months.

The analysis that generated those figures was carried out by the accountancy firm Blick Rothenberg, which has pointed out that rising house prices were also partly responsible for the increase in stamp duty payments on a national basis.

“The government will need to urgently consider whether the additional 3 per cent stamp duty policy is helping achieve fairness in the property market, or if it is creating more problems than it is solving,” said Robert Pullen from Blick Rothenberg.

“The policy intention was always stated to be to realign the residential property market to make it fairer for first time buyers.

“It is becoming clearer, however, that as prices continue to rise the measure has succeeded only in generating extra tax for HMRC.”

Blick Rotherberg’s analysis of the UK’s stamp duty situation was based on details of tax revenues taken in this context during the 12 months to July 2017. Those revenues were roughly 20 per cent up on the same figure for the previous year.

The so-called landlord tax was introduced by then chancellor George Osborne in 2015 with the stated aim of preventing landlords from “squeezing out families who can’t afford to buy a home”.

 

Written by: Steven Jones on Thursday 24/08/2017

 

 

How to calculate property yields and return on investment

How to calculate property yields and return on investment

 

Knowing exactly how much profit a commercial property will bring you is a vital component of the buying decision. We look at how you can calculate the yield and return on investment (ROI) so you can make an informed choice.

What is rental yield?

There are two forms of rental yield: gross yield which omits costs and expenses, and net yield which omits figures such as interest rates, maintenance costs and periods when your property may be vacant.

Rental yield is a method of calculating the ROI on your commercial property using how much rental income the property is likely to bring, over the true cost of purchasing the property. If you’re considering a Buy-to-Let property the yield means how much annual income it will generate as a percentage of the value of the property.

By using rental yield as a yardstick you can compare different properties before you buy in order to compare how much return you’re likely to make.

Making a calculation

Calculating the gross yield: the gross yield simply means how much ROI you will make before any expenses are deducted. It’s calculated by this simple formula:

Annual rent ÷ property value x 100

So, if the annual rent you expect to make on a property is

12 x £892 pcm (the UK average as of January 2017) = £10,704

And that figure is then divided by £216,750 (the average cost of a house in the UK as of September 2016) x 100 the gross yield will be 4.9%.

Calculating the net yield: the net yield will give you a figure for the ROI after you have deducted your expenses. You can calculate it like this:

Annual rent (using the same figures as above) = £10,704 – operational costs (purchase price, transaction costs, letting fees, maintenance and repair costs, mortgage interest and insurance etc) = £8,359 (average as of April 2015) ÷ property value (£216,750) x 100, the net yield will be 1%.

Clearly, the higher the percentage, the better, and please bear in mind that these calculations are based on the UK average – in your specific location and in your own individual circumstances, the figures will inevitably work out differently. Experts suggest that any figure above 7% (net yield) is a healthy ROI.

If you need advice on any aspect of purchasing a commercial property or are concerned that your current property is not delivering on its ROI potential talk to a member of our team. We can offer professional, current advice on getting better value from your mortgage as well as rental management services among other things.

 

Written by: John Padgett on Tuesday 25/04/2017

 

Why Brexit uncertainty is affecting the price of farmland

Why Brexit uncertainty is affecting the price of farmland

 

Amidst the political and economic uncertainty which has prevailed in the UK since the referendum in June, one commercial sector has been impacted more than most. We take a look at how the price of farmland has been affected and ask whether it is a good opportunity for investors.

Falling prices

Here in the UK we’re lucky enough to be able to grow around 60% of the food our population needs, and agricultural land comprises almost 17.2 million hectares. However, farmers are increasingly under financial pressure due to a fall in commodity prices, the threat of a rise in interest rates as well as the uncertainty about future agricultural subsidies in the wake of the Brexit vote.

This has led to a decline in the value of farmland in some areas of the country. The South East and East of England saw falls of between -2.5% to -3% during the third quarter of 2106 which, combined with falls from earlier in the year, means that the total fall is between -3.6% and -7% for arable land specifically. This contrasts markedly with a 180% rise in average values over the last decade.

The average price of an acre of prime arable land in the whole of Great Britain is now £9,260, down -2.3%. In England it fell by – 2.5% to £9,360 per acre. In Scotland and Wales the price remained the same as the previous year at £7,940 and £7,500 respectively.

Supply

In Great Britain as a whole during 2016, there was a 3% increase in the amount of farmland available to buy, compared to the previous year. England saw a 1% decline, Scotland’s available farmland rose by 4% but it is in Wales that the most dramatic change has been seen. The Principality saw an increase of 43% in the amount of farmland being marketed for sale during this year.

Investment opportunities

For those looking to invest in farmland, it may be a good time to do so. Some farmers are genuinely suffering from the low price of the goods they sell and many others have faced delays in the payments they receive from the EU’s Common Agricultural Policy (CAP). In these circumstances, many wish to sell and are negotiating Farm Business Tenancies (FBT) on three-to-five year bases. This proves to be an attractive proposition for investors who can take advantage of lower-than-open-market values.

If you’re interested in diversifying your portfolio by investing in farmland, contact a member of our team today. Our experts can source a variety of farmland businesses throughout the UK and can offer advice and information regarding ROI expectations.

 

Written by: John Padgett on Monday 29/05/2017

Which UK areas are struggling to meet commercial property demand?

Which UK areas are struggling to meet commercial property demand?

 

The UK’s entrepreneurial spirit continues to flourish, with a remarkable 5.5 million businesses operating in 2016 throughout the country, over 99 per cent of which are SMEs. However, in some areas, the demand for commercial property outstrips the supply. We take a look at the areas where demand is high and what sectors are faring best.

Regional investment

The country’s regions are out-performing London in terms of transaction volume for the first time since 2013. In 2015, a total of £24 billion was invested in commercial property – the highest level on record. The reasons for this include an improvement in the UK economy as a whole last year, as well as rising occupier demand, mainly within the industrial and office markets. And while London remains a favourite with overseas investors, particularly within the prime market, the regions beyond the capital offer excellent investment opportunities. Manchester, Edinburgh, Leeds, Birmingham and Bristol are all performing well, both in terms of rent and availability.

Variations

Despite some of the major cities performing well, and meeting commercial property demand, others are failing to satisfy the needs of small and medium sized business owners.

Scotland in general, Edinburgh notwithstanding, has seen a decline in demand during the third quarter of 2016, according to RICS, with at least 12% of prospective business owners failing to have their office needs met.

Away from the capital, data prepared by Oxford Economics reveals that office job growth forecasts were strongest in Nottingham and this is confirmed by RICS’ UK Commercial Property Market Survey – Q3 2016, which shows that office and industrial space in Nottingham remains in high demand, outstripping current supply.

The East Anglian market is also lacking in industrial commercial property, particularly in the mid-Cambridgeshire area, where many commercial property owners are converting their properties to residential, to capitalise on the demand for housing rather than commercial rentals.

The North East is reporting a continued shortage of quality accommodation, particularly among the office and industrial sectors and analysts predict a further shortfall in the future if commercial property values continue to plateau.

In the North West (excluding Manchester) commercial property activity is reduced, especially in the retail sector, where many high streets are suffering due to out-of-town retail parks and shopping centres, leading to a decrease in rents. Although some areas of the North West are seeing an increase in industrials.

The industrials sector in Northern Ireland is currently strong, driven by internal investment, as opposed to overseas’, while in Scotland, excluding Edinburgh, uncertainty surrounds commercial property in light of talk of a second independence referendum.

In the South East, the housing shortage has led to an increase in residential development to the detriment of commercial, leading to a decrease in the availability of commercial properties, particularly industrial units.

Throughout the South West demand for prime commercial space is still outstripping supply and has led to an increase in interest from investors keen to maximise their returns on scarce resources.

The West Midlands has seen strong demand for industrial units and retail premises which contrasts with a sluggish office market.

Yorkshire and Humberside’s rural prime office and industrial market is reported as being under-supplied, increasing rental costs accordingly. Whereas Hull, which will be the UK’s Capital of Culture 2017, is seeing increased interest in small retail units as well as seeing a potential boost by virtue of its status as a renewables hub.

Our quick snapshot of the state of the commercial property market yields mixed results throughout the country, with some areas reporting increased confidence and others sounding a note of pessimism.

If you’re interested in investing in commercial property or wish to rent in any location in the UK, talk to a member of our team. Our highly-qualified and -experienced advisors can offer you advice and information to enable you to make an informed choice about your purchasing or rental options.

 

Written by: John Padgett on Monday 08/05/2017

 

Why Buy-to-Let landlords are setting up as limited companies to avoid tax rises

Why Buy-to-Let landlords are setting up as limited companies to avoid tax rises

 

April 2017 sees the introduction of changes to the tax system for Buy-to-Let (BtL) landlords. In the light of these changes some are setting up limited companies in which to hold their property portfolio. We examine why they are doing this and whether it’s right for everyone.

What do the changes mean?

In 2015 the then Chancellor of the Exchequer, George Osborne, announced in his budget that he would be capping tax relief on BtL mortgages. His reasoning was that landlords who had built a property empire prevented first time buyers from getting on the ladder, exacerbating the housing crisis facing the UK.

The results of these changes, which will be phased in over four years, mean that BtL landlords who have properties registered in their own name will not be able to claim back as much mortgage interest relief as they did previously. This will increase their tax bills significantly if they are in the 40% and 45% tax brackets. Instead of being able to claim back 40% or 45% of the costs on their mortgage interest, they will, from April, only be able to claim back 20%.

Why set up a company?

If a landlord structures their property portfolio as a limited company, it will be exempt from this forthcoming cap and they will only be required to pay corporation tax on the company’s profits – currently corporation tax is at 20% but is due to fall to 18% by 2020.

Increasing numbers of BtL landlords are selling their property portfolios to companies which they have set up specifically in order to avoid paying the higher rate of tax.

The advantages of such vehicles include being able to claim the running costs of the BtL investments as ‘allowable expenses’ – offsetting the costs of any mortgage payments, wear and tear on the property, maintenance costs, letting fees and more.

Would you benefit?

A limited company in which to hold your commercial property may seem like a good idea but there are associated costs involved which may deter some people. Most notable of these is the possibility of paying capital gains tax on the sale if the value of the property has risen since its original purchase. This can range from 18% for a basic rate tax payer or 28% for a higher rate tax payer.

Stamp duty may also be payable on the purchase of the property by the company – since April 2016 this has also attracted a 3% surcharge on BtL purchases.

In addition, since the property has changed ownership from a person to a company, the terms of any mortgage will have changed too. This can mean that the company may face an early repayment charge, a fee for remortgaging as well as legal and valuation fees.

A limited company as a vehicle for your commercial property portfolio may work for you but will depend on your individual tax circumstances. It is vital that you seek professional advice before committing to such a process. If you need specialist accounting or tax advice talk to a member of our team.

 

Written by: John Padgett on Tuesday 11/04/2017

 

Flagship Middlesbrough serviced office development up for sale

Flagship Middlesbrough serviced office development up for sale

A town centre serviced office development in Middlesbrough has been put on the market with a £3m asking price.

Cleveland Business Centre, which last year underwent a £1m refurbishment and is in an area close to Teesside Combined Court Centre earmarked for a £68m regeneration initiative by Middlesbrough Council, has seen an influx of new tenants over the past 12 months and is now almost fully let, with just two of its 34 units now vacant.

On the market with Eddisons, the business centre’s £2.95m price tag reflects a yield of 11 per cent on a ‘triple net’ annual rental income of £336,000. The centre covers 31,700 sq ft over three floors and is home to a roll call of professional firms, including lawyers such as Irwin Mitchell, barristers’ chambers and specialist recruitment companies.

Steven Jones, a director in Eddisons’ agency division said: “Cleveland Business Centre is a real success story that has given a boost to Middlesbrough’s fast developing economy. Following its refurbishment, in the space of just a few months it has gone from having only ten tenants to being almost fully let, bringing hundreds of jobs to the town in the process.”

He added: “As Middlesbrough’s digital and knowledge economy continues to go from strength to strength, demand for high quality serviced office accommodation, which fits the bill so perfectly for dynamic smaller businesses, looks set to escalate rapidly. Eddisons is seeing a growing demand for our services on Teesside and we expect Cleveland Business Centre to generate a great deal of interest among investors .”

As well as a new gym for staff and their families, the refurbished business centre also includes conference facilities and on-site car parking.

 

Written by: Steven Jones on Wednesday 29/03/2017

 

How and why landlords might want to move a tenant out their property

How and why landlords might want to move a tenant out their property

 

As a commercial landlord, there will inevitably come a time when you need or want to move a tenant out of your property. We look at some of the most common reasons why this situation arises and how to go about achieving it.

The Landlord and Tenant Act 1954

If the commercial lease your tenant has signed is inside the Landlord and Tenant Act 1954 (the 54 Act), it offers a measure of protection to them. It includes the right to take up a new tenancy at the end of their lease, providing there are not statutory grounds for possession by the landlord. That is to say, that the tenant has fulfilled all his or her obligations within the law and the lease.

If you wish to remove a tenant from your commercial building, you must serve them statutory notice and provide a termination date which must be no less than six months and no more than 12 months from the date of the notice. In these circumstances, a statutory ground for possession may include your intention to redevelop the property, either by demolition and reconstruction, or to use the premises for your own purposes. Most tenants will accept these circumstances, but if they object, it may be necessary to go to court to convince a judge of your intentions.

However, if your tenant has signed a lease which excludes them from the 54 Act, they have no such protection and repossession of the commercial property is a more straightforward matter.

Other circumstances

Non-payment of rent: This is one of the most common reasons why a landlord would want to move a tenant out of their commercial property. This constitutes a breach in the tenancy agreement and there are ways and means of dealing with it. However, you must seek legal advice as to how to proceed, and follow specific steps to avoid costly litigation.

Non-compliance of lease obligations: This can include a number of issues, including things such as abandonment, not keeping the premises in good repair and/or allowing it to fall into disrepair, causing a nuisance to the neighbours (whether through noise, pollution or anti-social behaviour which may include employees parking without due consideration), subletting without your permission, or if the tenant has used the property for illegal purposes.

You should be aware, however, that if you wish to forfeit the lease and remove your tenant, it must contain a clause which allows you to do so. This highlights the importance of having a lease drawn up by a commercial property specialist who has experience of the types of problems which commercial landlords encounter on a regular basis.

If you need advice or information on any aspect of removing a commercial tenant, talk to a member of our team. We can advise you on how to proceed legally, safely and with the minimum of disruption to your commercial interests.

 

Written by: Steven Jones on Tuesday 28/02/2017

 

How to avoid a large dilapidations bill when vacating a commercial property

How to avoid a large dilapidations bill when vacating a commercial property

 

One of the most contentious points of vacating a commercial property can be the dilapidations bill which the tenant faces at the end of the lease. We take a look at some simple measures you can take to ensure you don’t get stung when you leave.

Before

The answer lies in planning ahead. Even before you have signed the lease you should be examining its dilapidation clauses to understand exactly what you will be responsible for at the end of it. A qualified chartered surveyor will be able to explain in detail what the clauses entail and how you can limit your potential liability and prevent a worst case scenario. This is particularly important if the building you are about to occupy is already in need of repair and may require significant investment from you to bring it up-to-date or to convert it to your own purposes.

To avoid a substantial dilapidations bill at the end of your tenancy, many chartered surveyors advise that you draw up a Schedule of Condition (SOC) before signing a lease. This will record exactly what condition the property was in before you occupied it, backed up with photographic and written proof. If the landlord agrees with appending this to the lease he or she is then implicitly accepting that the property will be returned to that state after the lease has finished.

During

You should budget for any potential dilapidation costs during your tenancy to ensure that, if the worst comes to the worst, you are able to pay for the repairs your landlord requires. Experts recommend that you set aside at least £15 – £20 per square foot of the rental property, or a year’s rent. The implications for not budgeting mean that if you are faced with a large repair bill and cannot pay it, you may be unable to break the lease and face not only legal expenses but also continued outlay for rent. On the plus side, repair costs are an expense which can be included in your profit and loss calculation, and therefore they can be written off against tax.

Be aware that a landlord can also impose an Interim Schedule of Dilapidations clause into the lease which he or she can serve at any time during your tenure.

After

About six months before your lease is due to finish, your landlord will issue you with a Schedule of Dilapidations, detailing the work he or she requires you to complete before the lease is up. This usually means that you will be asked to reinstate any alterations you have made, make any repairs which are necessary and restore the property to ‘good order’. If the landlord feels that you have not completed your obligations he or she may issue a Quantified Demand, which is a claim for damages.

In many instances, the case does not go to court, as your surveyors and your landlord’s surveyors can go through a process of negotiation to arrive at a settlement figure acceptable to both parties. However, if you and your landlord are then unable to agree, you could face potential litigation, although a process of Alternative Dispute Resolution (ADR) is recommended within what’s called the Dilapidations Protocol before reaching that stage.

Our team of highly-qualified and -experienced chartered surveyors can offer both tenants and landlords advice and guidance about every aspect of drawing up a lease with specific regard to dilapidations, as well as putting together a Schedule of Condition, to avoid contentious and costly law suits at the end of a tenancy. If you need more information, please talk to a member of our team.

 

Written by: Ian Harrington on Wednesday 01/02/2017

 

Leeds office market and new benchmark rent set for city centre space

Leeds office market and new benchmark rent set for city centre space

 

According to figures released today from the Leeds Office Agents’ Forum (LOAF), 109,682 sq ft of office take-up was recorded in Leeds city centre in the last quarter of 2016, alongside 28,942 sq ft in the out-of-town market.

The freehold acquisition of 33,686 sq ft at 1 Victoria Place by Medical Protection Society was the largest of the 30 city centre transactions to complete during the period. The 12,755 sq ft letting to BDO at Central Square was the second largest and also set a new benchmark rent for this cycle at £27.50 per sq ft.

Of the 21 deals transacted in the out-of-town market, the letting to SD Taylor at Turnberry Business Park in Morley was the only one above 5,000 sq ft to complete in this quarter.

Total 2016 Leeds city centre take-up stood at 430,000 sq ft, compared with 679,000 sq ft in 2015 which was the second highest year on record. Full year activity in the out-of-town market reached 312,000 sq ft compared with 268,000 sq ft from the previous year.

Bruce Edmondson from Cushman & Wakefield and spokesperson for the LOAF, said: “The Leeds office market showed its resilience last year with total 2016 take-up in line with our forecasts and a new headline rent set. Activity was however more subdued in the final three months of the year, as the impact of Brexit made some occupiers more cautious. Equally, a number of larger deals anticipated to complete in Q4 slipped into 2017 and will immediately boost this year’s figures.

“There’s currently around 500,000 sq ft of live office requirements for grade A space in the market, which coupled with public sector requirements from HMRC and the GPU and a flurry of upcoming lease events within the city centre will boost take up in 2017.”

Adam Varley from LSH added: “What is clear is that occupiers continue to want good quality office space. Schemes such as M&G’s Central Square and MEPC’s Wellington Place were major city centre benefactors last year with deals to the likes of RSM, BDO, Ward Hadaway and Sky Bet.

“The letting to BDO set a new benchmark rent in Q4 and we anticipate prime office rents will continue their steady upward trajectory. This underlines the continued demand for Grade A stock and low levels of new supply.”

The Leeds Office Agents’ Forum was established in 2010 by the leading surveying firms to collate and distribute definitive market information. Its members are BNP Paribas, Carter Towler, Carter Jonas, CBRE, Colliers International, Cushman & Wakefield, Eddisons, Fox Lloyd Jones, Bilfinger GVA, JLL, Knight Frank, Lambert Smith Hampton, Ryden, Sanderson Weatherall, Savills and WSB.

 

Written by: Steven Jones on Monday 23/01/2017

 

 

What is agricultural property relief?

What is agricultural property relief?

 

If you’re involved in farming, you may be aware that you can take advantage of tax relief to avoid some inheritance tax. This is known as Agricultural Property Relief (APR). We take a look at how the system works.

APR

The government’s guidance on APR is that up to 100% tax relief may be applied for on certain agricultural property, either before or after death. Certain caveats apply, of course, such as who is deemed the owner of the land and how long they have owned it, but APR can be a valuable tool in mitigating the expenses of inheriting agricultural property.

What is classed as agricultural property?

According to the government, the following qualifies as agricultural property for the purposes of APR:

  • Land or pasture which is used to grow crops or rear animals in the UK, the Channel Islands, the Isle of Man or in the European Economic Area
  • Equine stud farms
  • Short coppice rotation
  • Land which is not, at present, farmed under a Habitat Scheme (land which is managed to preserve the habitat of wild animals and birds)
  • Land which is not, at present involved in crop rotation
  • The land’s associated milk quota value
  • Certain agricultural shares and securities
  • Farm buildings, cottages and farmhouses

Farm machinery and equipment, buildings which are derelict, crops which have been harvested, livestock and property which is subject to a binding sale contract do NOT qualify for APR.

Timescales

There are also certain timescales associated with APR which must be adhered to in order to qualify. These state that the property must have been owned and used specifically for agricultural purposes for two years by the owner (or their spouse or a company run by them) or seven years if the property was occupied by, for example, a tenant, immediately before its transfer to a beneficiary.

100% or 50%?

The rate at which APR can be claimed varies according to circumstances. Relief of 100% can be claimed if the land owner farmed it themselves; the land was let out on a short-term grazing licence; or if a tenancy was begun on or after 1 September 1995. All other circumstances will qualify for 50% relief.

If you’re involved in agriculture and would like clarity on any aspect of APR, talk to a member of our team. Our professional advisors can offer advice and information about all aspects of inheritance, not just agricultural property relief, which may benefit you or your descendents.

 

Written by: Steven Jones on Monday 28/11/2016