Property TV | Property Question Time – S1 Ep103 Stefano Lucatello, Mary Anne Bowring and Paul Mahoney

Jemma Forte: Hello, you’re watching Property Question Time. My name is Jemma Forte and this is the property show where you get to ask your questions to a trio of industry experts. So, let me introduce you to the panel today. First up, we have Stefano Lucatello who is a Senior Partner of Cobalt Law International Property Lawyers. Then we have Mary-Anne Bowring, Founding Director of the Ringley Group and last but not least of course is Paul Mahoney, MD of Nova Financial Group.

We’re going to get going because we have so many questions that have come in. Stefano, I’m going to start with you. This person is saying, “I’m thinking of gifting my property to my son. He’s permanently a resident in France and I myself am in the U.K., and whilst I realize that capital gains tax doesn’t apply to gifts of property I have heard that the tax authorities might deem that the reason for the gift was to avoid capital gains tax and therefore apply it as if it had been a sale. What can I do?”

Surely they just can’t do it on a whim?

Stefano: Think smart. Always consult an advisor.

Jemma Forte: Yes.

Stefano: That’s the starting point. I’m taking it this property is in the United Kingdom?

Jemma Forte: Yes.

Stefano: Right, let’s take it as in the United Kingdom. As such he could gift the property to his son, no problem whatsoever. There shouldn’t be a problem for valuation purposes. There shouldn’t be any Land Revenue inquisition as to what’s going on. I’ve never heard of it in 30-odd years of being a solicitor. I supposed it depends which area you are in but I doubt it very much. You’re free to do what you want with your property. I can’t see a capital gains tax problem. I can see an inheritance tax problem possibly if he dies within seven years because the gift would be what’s called a potentially exempt transfer, so if he’s survived seven years or more then the value of the property would not be brought back into a calculation of his estate when he does die.

Jemma Forte: Okay, that’s interesting.

Stefano: If he does die within that seven year period then various percentages obviously would get brought back into the calculation, but as such instead of gifting it outright he could actually bring his son onto the title so they could become joint tenants which means that … It’s probably the cheapest way legally and any other wise to do it. So they both, they’re joint owners and if he were to die first then the property would automatically go to his son.

Jemma Forte: But then do you have to pay inheritance tax on the half, on the 50% at that point?

Stefano: No.

Jemma Forte: No, okay.

Stefano: Well, it depends. It very much depends. As it stands at the moment there is something called the mill rate band. That is the amount of money that you can leave behind without inheritance tax being taxed on your estate. At the moment it’s $325,000.00. It’s going to remain like that for the next few years, so it would depend on how much the 50% share was worth at the moment of death. That’s the moment of valuation and it depends how far in the future we are and how far that mill rate band has risen.

I think the easiest, the cheapest and the most effective and practical way of dealing with this would be to actually put his son onto the title, which is, it’s a very easy exercise and it’s the simpilist and the most cost effective.

Jemma Forte: Yeah, as you say, is that quite cheap to do, just changing the name?

Stefano: Yes, very easy. Yes, absolutely.

Jemma Forte: Okay, and I guess ultimately you are doing it, aren’t you, to avoid tax?

Stefano: Yeah, absolutely and it also gives continuing rights and it sort of eases him onto the title as a half interest shareholder as it were of the property. So, it’s probably the best way to deal with it.

Jemma Forte: I’m not going to give my house to my kids yet.

Stefano: No?

Jemma Forte: No, but their 13 and 11 and they’re just not responsible. One day.

Mary-Anne … maybe I will, don’t know. This person says, “I was wondering whether anyone could help me with this. I’m in the process of selling my house and it’s only today that I discovered that my house is actually a lease hold title for 999 years which started in the 1700’s. I probably should have known this before purchasing the property five years ago but I was a first time buyer and I didn’t really know much about it then.”

Surely they’re not alone. It is a bit of a mine field.

“It’s a really old stone cottage in a tiny village. When I bought out the house I had to take out indemnity as the title deeds had been lost so no one knew who owned the house.” That’s obviously how this problem has arisen. “So my questions are, number one, is my house a lease hold because deeds have been lost or do I have two separate issues? Number two, will this affect me selling the house? Number three, can I turn it from lease hold to free hold and how is this done and will I need to reduce the price of my house?”

There’s quite a lot there.

Mary-Anne: Yeah, well first I think that one would assume that because you’re in a terrace in a very small [inaudible 00:05:11] village that probably all the properties are in the same boat.

Jemma Forte: Yeah, this is a little stone house. It’s quite cute, a stone cottage.

Mary-Anne: If it’s a stone cottage and they were the original workers’ cottage perhaps to a castle in the grounds of, then there sure be probably other properties that are similar in the same scenario. Whether any, if you like, defect or abnormality on title affects the purchase price depends on what else is available. If all the other cottages in the village were found to be free hold and yours is the only lease hold then yes, your price is going to be depressed, but if everybody who wants to live in that village has to accept lease hold title then the if that is the normal price for that property.

You’ve got quite a long list. I don’t believe it’s lease hold just because the deed’s been lost but title indemnity insurance is available for defects or missing or undisclosed title.

Jemma Forte: So they’ve got that so that’s good.

Mary-Anne: And it wasn’t until 1925 that it became obligatory to register or the language just came into being as we know it today, so because this lease is, well 1700’s-

Jemma Forte: Is so old, yes.

Mary-Anne: So old. Who knows what happened then.

Jemma Forte: Yeah, they might like board it for a cow and sheep or something.

Mary-Anne: The people aren’t around to tell us what really went on. But in terms of having a lease you’ve got more than 600 years left so it is a long lease. Leases don’t adversely affect mortgage valuations until 70 years so that’s not to worry in theory. In terms of buying the free hold of the property that depends if it’s Crown lands or lands that’s restricted from being sold free hold. If it’s-

Jemma Forte: Which is why it might be lease hold in the first place.

Mary-Anne: It’s beginning to lead me to think it may well be on some special land. If that’s not the case then yes, she can. The 1967 Act is the one that applies to, which sets out the valuation formula to buy houses and it will be based on the ground rent and a modern ground rent for that property.

Jemma Forte: Okay, so it sounds like a chat with the neighbors is a good idea actually.

Mary-Anne: Well, yeah, first of all pop down the pub and see who else has got a lease hold house and what their experiences are, but then yes, you need to find out who the free holder is. That should be well known and a well established piece of information and that’ll set out whether you can get your free hold or not, but in terms of it’s market, it’s supply and demand. As I said, if all the houses are lease hold then there are no difference. If yours is special and unique then yes, it will probably depress the price.

Jemma Forte: Okay, and I just say, ten out of ten for remembering every part of that question. That was quite, quite amazing, wasn’t it? Amazing, you thank you so much. It was a really good answer.

Okay, Paul. This person says, “I’m looking for some advice on the best course of action to pursue. I am looking to buy my first house or flat but the aim is to rent it out so a buy to let mortgage is what I need to look at getting. I have a tied cottage with my job so we’ll not be living in the property, so this is why it will be rented out. What’s the best option to go on because I know banks don’t like giving a first time buyer a buy to let mortgage? I am aware of the other regulations around the different types of mortgages and that least a 25% deposit is required which I have the savings for to cover this large deposit.”

Paul Mahoney: Okay. I think there’s a couple passes at that question. The mention about buying the first property and whether that becomes a buy to let because of the tied cottage or whether they’re buying a buy to let anyway is something that needs to be determined there I suppose from a property perspective. On the mortgage side there isn’t really, there’s just the option of the first home buyer mortgages, isn’t there? They are a first time buyer. They said there that lenders don’t like lending to first time buyers, that’s not necessarily true. Different lenders have different criteria.

Some lenders just won’t lend to first time buyers whereas others will. Some lenders will look solely at the property and the rent that property generates and not so much at the person who’s buying and others want to look very much at the person who’s buying. There’s a very broad criteria out there from a mortgage perspective. There would likely be options available to this person, especially given they’ve said they’ve got the 25% deposit. There would quite likely be options available depending on their financial position and the property they’re planning to buy.

So far as other options what they should buy, so far as from the property perspective will be determined, I think, by whether they plan to use that for personal use in the future.

Jemma Forte: In the future, yeah.

Paul Mahoney: Or whether this is solely just an investment.

Jemma Forte: Yes, okay. It sounds like it. It is going to be their first house or flat but they’re just not in the position at the moment, at least this is what I glean from this, to live there. There’s no point at the moment.

Paul Mahoney: Well they have the tied cottage so it doesn’t make much sense. If that’s the case, if they’re buying the place to live then that’s a personal decision. They’re going to buy somewhere that they like that they’re comfortable, all those sorts of things which doesn’t necessarily transfer to what makes sense as a buy to let, because that’s nothing to do with what they like. It’s about what the target market likes and wants. The first is obviously very emotional whereas investing should be very much commercially minded, unemotional, so they need to make that decision.

Jemma Forte: Okay. They could get a buy to let mortgage though?

Paul Mahoney: Quite likely. There’s limited information there.

Jemma Forte: Not impossible, yes.

Paul Mahoney: It’s certainly not impossible for a first time buyer to get a buy to let mortgage. There are quite a lot of lenders that will do it but there’s a range of other criteria that comes into play, for example their income. Some lenders will look at the property, where it is, what it is, the value of the property.

Jemma Forte: And their personal situation is. This is the thing that always amazes me about this show is there are so many unique situations that come up. This is why we never run out of questions because are like “This is my situation.” I guess that’s where you’ve just got to go and go, “This is it. Tell me, and just be honest.”

Paul Mahoney: Yeah, and it can be kind of a minefield. What they shouldn’t do is just go down to their local bank or the bank they’ve currently dealt with because they have one set of criteria.

Jemma Forte: Yes, I remember doing that. I went to my bank and then it was sort of like, ewww. Then you go to a broker and you’re like, “Wow.”

Paul Mahoney: And maybe that would work. Maybe they’d be extremely lucky and their bank would work but there’s over 1,000 buy for let products in the market.

Jemma Forte: Yeah, these two have spoke.

Paul Mahoney: Half of them are only available to intermediate sort of brokers so you’re limiting yourself very much by trying to go out and navigating that mine field yourself.

Jemma Forte: Yes, yes. I loved with I saw a broker also because they could just break it down for you. It’s not an idiot’s guide but it’s kind of here is the clear information that need to know. I’ve got all the kind of complex issues at the back.

Paul Mahoney: It’s like being sick and Googling your systems. They usually lead you down the wrong path, isn’t it, whereas if you go to the doctor you find out what’s wrong with you.

Jemma Forte: And this is why my partner thought he had pleurisy but he didn’t. He just slightly hurt his rip. That’ another story. Okay, thank you so much guys.

That is it for the first part of Property Question Time. We’ve got a short break now and I’ll see you after.

Welcome back to part two of Property Question Time with me, Jemma Forte and my trio of industry experts, Paul Mahoney, Mary-Anne Bowring and Stefano Lucatello. Right, Stefano, I’m going to hit you with a question next, if I may. This is a goodie. “We’re in the process of buying a house in France!” They put an exclamation mark because I think they are excited. “When we viewed the house it still contained a lot of furniture and personal items as the elderly owner had gone into a home.” Well, that’s a bit sad, isn’t it? Anyway, “The barn was also full of large hay bales.” Now, you will correct me because I know you speak so many languages, “l’immeuble.”

Paul Mahoney: L’immeuble.

Jemma Forte: L’immeuble. What is that, sir?

Paul Mahoney: It’s the estate agent.

Jemma Forte: Thank you. L’immeuble. You would know that one. “… assured us that it would all be clear before we take over and to be honest if the house wasn’t clear it wouldn’t be the end of the world, but the hay in the barn would be a problem.” It’s very heavy, isn’t it? “We’ve signed the compromise and the 10 days has expired. I know we should make an arrangement to view the house again on the day we sign which will probably be next month, but if the house hasn’t been cleared I’m not sure of how to approach things.”

Paul Mahoney: Yes, well vacant possession. That’s the answer. It’s the same as it is in England. You buy a house it should be with vacant possession unless the contract says otherwise.

Jemma Forte: Yeah, they’ve got really nice furniture. [crosstalk 00:14:10]

Paul Mahoney: Vacant possession doesn’t necessarily mean free of people.

Jemma Forte: Okay, stuff.

Paul Mahoney: It means also free of stuff.

Jemma Forte: Yeah.

Paul Mahoney: Right, in view of the fact they’re buying a property which has a barn presumably it’s in some sort of agricultural area and either it comes with horses or it has horses and therefore they’ve either made hay bales out of it or the next door neighbor is a farmer and he or she has rented the barn out and has put his or her bales of hay into it. Either way the compromis de vente, which is the contract should, or it does under French law because it’s very consumer orientated, has a clause in it which says, “The property will be sold with vacant possession” and then it goes to say “of stuff and people.” Unless you put a condition in it saying, “On completion the house will be sold with vacant possession except for …” then that would be a breach of contract.

My view would be that before you … If he’s been and they’re going again, I would go before completion and I would be speaking to the farmer next door or whoever it is and finding out where these hay bales come from. That’s the first thing. The second thing is that you need to get them removed if you don’t want them or you could make an arrangement with the seller that you get them but that the next door neighbor comes and collects them on the day of completion, you sell them or whatever. You may be able to make some money out of them, I don’t know.

Jemma Forte: E-bay.

Paul Mahoney: Yeah, well probably ee-bale, yes, dot com. Yes, it’d be easier to go to the farmer next door and say, “I’ve got these hay bales. Do you want them or don’t you want them or do you know someone?” I would have thought it would be very easy. It’s not a problem. It’s not really a problem.

The other thing that French law dictates is that when you buy a property abroad as you do in most countries, when you buy a property abroad the furniture and the stuff that’s in the house usually comes with the house unless there are certain effects of value or sentimental value which the vendor wants to keep. There’s always an annex, an appendix one, two and three of what is left in each room. If you don’t want it you will then say, “I don’t want this stuff. Dispose of it” and it’s their obligation to dispose of it on or before of completion.

Jemma Forte: So when you say, “Their obligation” in this case is it the elderly person who’s gone into a home and they’re not going be possibly-

Paul Mahoney: Well, they probably have a grandson or a granddaughter or a child.

Jemma Forte: Yeah, what if they don’t?

Paul Mahoney: Well if they don’t then it’s up to you, really, to negotiate with the estate agent and the estate agent’s fundamental because they do much more than they do in the United Kingdom. They arrange everything.

Jemma Forte: Not possible. Joke.

Paul Mahoney: I won’t be able to comment on that really, but yes, that’s the point. Your focal point is the l’agent immobilier, the estate agent. Ask him or her to sort it.

Jemma Forte: Okay, to sort it out.

Paul Mahoney: They should sort it for you.

Jemma Forte: Might you have to pay a bit extra for that?

Paul Mahoney: You might have to but you might get back on the sale of the hay bales.

Jemma Forte: Okay. All right then.

Paul Mahoney: If not, buy two horses.

Jemma Forte: Yeah, or have a barn dance.

Paul Mahoney: A barn dance, yes.

Jemma Forte: Yeah, do hot dogs and stuff. Okay, Mary-Anne on to you now. This person says, “I’m trying to make sense of the title register on a flat I’m going to see. It looks like the new owner was registered in 2015 but there’s no sale in that year on the land registry’s price sold data. I assume this means the lease was transferred to them, probate gift et cetra, rather than sold. The lease length is also very different to what I was told, 89 years rather than 114. If the lease had been extended would this be registered on the title? It all seems very strange.”

Mary-Anne: Okay. You have said that the transaction was registered, just the price wasn’t registered.

Jemma Forte: Yes.

Mary-Anne: So that means it’s a transfer, perhaps for no consideration which could be probate. It could be a gift. It could be a number of different types of exempt transfer. The most important thing is that you are buying the property from the current registered owner, so that hurdle is ticked. Going on to the next hurdle, in terms of the lease length, people often quote the lease as what it was originally, so if it was 125 years or 115 years originally, those numbers stick in people’s heads but what you actually buy is the residual of what is left of the lease. So the 89 years is what is left today.

Jemma Forte: Right, which is fine.

Mary-Anne: Fine and you’re fine ’til about 80 and then it begins to become a problem and you should always extend it before it becomes 80, because it’s significantly cheaper.

Jemma Forte: Oh, really. Okay, so almost maybe five years in do it then just to get it out of the way.

Mary-Anne: Well, you can do it at 80 and a half years but you need to do it before 80, otherwise you have to [inaudible 00:18:48] the land or more for the extra years that you’re buying. In terms of the lease extension if a lease extension has happened it should be registered. The only reason it wouldn’t be registered is because its lister forgot to do it or something went wrong which is highly unlikely.

Paul Mahoney: But probably likely.

Mary-Anne: Highly unlikely, so I would suggest a lease extension hasn’t happened and that someone has imagined the lease was 114 years when it isn’t.

Jemma Forte: Yeah, like a slip of the tongue.

Mary-Anne: SO yes, they can extend it quite easily. They have to either have lived there for two years and serve a section 42 notice to do it or they can persuade the seller to serve a section 43 notice exercising their right which you then inherit. A couple of dangers come with that because the price may not be determined even if you inherit the rights but that may be the case later anyway but of course as the lease is getting shorter it will be cheaper to extend it now then it would in two years’ time.

Jemma Forte: Got you, and can I just ask, when you are extending a lease does it cost more if the property is bigger? Is it just like a cost, because a lease is a lease? Is it quite standard?

Mary-Anne: No.

Jemma Forte: No, it isn’t.

Mary-Anne: There’s about 13 different variables which go into lease extension but in simple terms a ground rate is a variable. The current value of the property’s a variable and the length of the lease is a variable. So yeah, there’s a lot of variables.

Jemma Forte: They want a kind of like a two bed flat in a sort of mid place, in London say. Would you be looking at-

Mary-Anne: But a two bed flat in London could be two hundred thousand in Totter and it could be two million pounds in Chelsea, so the reason I stray to answer your question. [crosstalk 00:20:24]

Jemma Forte: Okay, here’s a better question. Here’s a better question. Is it hundreds of pounds or is it thousands of pounds?

Mary-Anne: If you’re perhaps in the outer London burroughs it could range from five to twenty thousand. If you’re in the inner London burroughs it could well be at several hundred thousand.

Jemma Forte: And this is why it’s such an issue.

Mary-Anne: It depends on the length of the lease.

Jemma Forte: Yeah, ’cause it is, so it is really a substantial amount.

Mary-Anne: You can extend your lease right down to having six months left on it, so extending a lease 81 years and extending the lease at half a year, the question you asked me is impossible to answer.

Jemma Forte: It’s just how long is a piece of string? But essentially it’s a really substantial cost and like buying a lease on property you’ve got think about that.

Mary-Anne: Yeah, there’s a whole area of specialist evaluation of leasing you need to delve into.

Jemma Forte: Yeah, okay. Thank you. I’m asking on behalf on behalf people who’ve got no clue. Did you see that was good?

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