Joti Patel: 00:14 Hello and welcome to property question time. The show where you got the opportunity to ask questions to our panel of property experts.
Joti Patel: 00:20 Welcome. I’m Joti Patel and here with me today I have Simon Zutshi, financial independent property investor with two decades of experience investing in residential property in the UK and oversees. And I have Stefano Lucatello, senior partner and head of Kobalt law international lawyers. Where he’s known for his knowledge of English and foreign law to advise global clients.
Joti Patel: 00:42 And all the way from Australia, I have Paul Mahoney, CEO of Nova Financial Group. Thank you for joining us today.
Joti Patel: 00:50 As usual, we have a huge amount of questions being emailed into us. So Stefano.
Stefano Lucatel: 00:53 Okay.
Joti Patel: 00:54 And first question. Nice question actually.
Joti Patel: 00:57 “The UK is too busy and noisy for us and we went to retire somewhere peaceful in Italy. Where do we go?”
Stefano Lucatel: 01:03 Is that it?
Joti Patel: 01:03 That’s it.
Stefano Lucatel: 01:06 Italy. Yes great choice. My parents come from Italy, so I’m slightly biased towards Italy. Like any country, what is your budget? I think that’s the first thing. Do you think the sea? Do you like the country side? Do you like the mountains? Mixture of both? Let’s say you have a medium sized budget, I would choose somewhere like the Marche region, or the Marches as we call them in English. That’s the region of Italy that overlooks the Adriatic, half way up Italy’s leg on the Adriatic side. Very good, why? Because if you’ve got children and a small family, you can have the pleasure of both the sea and the mountains within an hour distance of each other. So if you get sick of one, you can take the kids to the other, and vice versa.
Stefano Lucatel: 01:49 The plots of land that you can buy, and the houses that go with the territory are very big, and the costs of buying a house in that area are medium, they’re not high, and they’re not low, but in the middle. You can get fantastic properties where you are next to each other, but you don’t see your neighbor because the plots of land are so big. You get your money’s worth in that area. It’s also seismically because Italy over the last 10-15 years has been prone to earthquakes. Seismically it is a reasonably stable, literally stable area to live in.
Stefano Lucatel: 02:21 You got to make the consideration’s as to budget, geographical area. What I always say is, “Go there on a number of occasions. See it at it’s worst, see it at it’s best, autumn, summer, winter, spring. If you’re gonna buy, don’t buy straight away”. We’ve said this over and over again and we’ll continue to say this. Rent. See if you can get an arrangement with the vendor so that he will deduct what you pay as rent for the first six or 12 months, off the purchase price, and then come and go. Come and go. Use different airports, and see it, try it. Just like a car, you’ve gotta try it. You can’t just go there and imagine that you’ll be happy by settling in the first place that you go too.
Joti Patel: 02:59 And you make a very interesting point, because we’re used to seeing countries like Italy, when they’re at their best, when the sun’s shining, and it’s in holiday mode. But actually going all year round, you will get a different experience.
Stefano Lucatel: 03:08 Different parts of Italy in Winter are totally different from the South of Italy, where you get sunshine, but it’s still very cold, to the North of Italy, which is very humid, snow, rain, torrential ran. Also, be careful because if you’re going to places like Tuscany and Umbria, certain areas in the Winter are liable to landslip, landfall, mountains are slipping. I had a client recently who woke up one morning in winter and found that his access road had disappeared down a valley, and he couldn’t get out of his own property, and had to be airlifted. That’s pretty, pretty serious, but you have to be careful now.
Stefano Lucatel: 03:41 And now you have to be very, very particular in what you buy, where you look for it, take your time. I always say to people, “Take 12-18 months to buy your property. Don’t rush into it because if you rush in, you will only have to sell the property and lose to lawyers fees, estates agents fees, everyone else but you will gain”. And it could also cause you a matrimonial problem if you’re married.
Joti Patel: 04:04 Well of course, and as they say fools rush in. So very wise.
Stefano Lucatel: 04:07 Absolutely.
Joti Patel: 04:07 And also you make a very good point about earthquakes. That is just something we don’t think about in this country. We don’t think about mudslides and earthquakes.
Stefano Lucatel: 04:14 France, for example, where they have a very strong purchasing system, you get told if you are buying in a seismic region, and you get told if it’s a red area or a green area, and you can tell immediately if the region has taken appropriate remedies or made appropriate remedies for evacuation, and that sort of thing. In Italy, we don’t have that yet.
Joti Patel: 04:34 And where would you possibly buy, because obviously you don’t have little young children. So where would you say?
Stefano Lucatel: 04:39 Well my father is from Tuscany, and I think Tuscany is the most beautiful region of Italy.
Joti Patel: 04:43 What about yourself Simon?
Simon Zutshi: 04:46 I love visiting a sea. I love Italian food. I wouldn’t know where to buy, but I would take on what Stefano said about go and travel the whole country because there’s such variety in Italy. If you’re gonna go and set there, really make sure you make the right decision.
Simon Zutshi: 05:00 And there’s another thought as well, which is really just a bit of a twist on this. Often people think, “I have to go and buy, and live somewhere”. With this day and age of airbnb, you can go and rent really nice places for months on end and not have the hassle of ownership.
Simon Zutshi: 05:15 I would also encourage people to always think about, “Do you really want to put down a big chunk of money and get a mortgage in a foreign country, when you may not need to?”.
Joti Patel: 05:21 That’s a lot of responsibility so yeah that’s a very good point. Thank you.
Joti Patel: 05:25 Okay. Over to you Simon.
Joti Patel: 05:26 “So my new landlord is insisting that I use a specific energy provider, but I do not wish to change it. I understand this is illegal, with the exception where the landlord pays the bill and then charges the tenant. In my case I am responsible for paying the provider. They gave me a letter stating they will charge £50 for gas and £50 for electricity if I change, as a fee for then changing it back. The contract states I am free to change with their permission but that was not made clear to me until the contract was signed. What can I do now?”
Simon Zutshi: 05:55 Okay, a couple of points here. First of all, the basic premises right. When you move into a property of a single AST contract, you as a tenant are responsible for paying for all of the utility bills. If it’s an HMO, the landlord might often include the bills as part of the rent. So in this case, single let, their responsible for the bills and they can choose anyone they want to supply that electricity, gas and water.
Simon Zutshi: 06:20 However, it sounds like there has been a clause in the contract whereby they have to get permission from the owner of the property. Now you can put anything you want in a contract, but it has to be fair and reasonable. So I would suggest that if they want to do, they could potentially go to court and say, “No, we’re changing it and we don’t agree with this”. And if a judge rules that it’s being unfair, they won’t have to pay. But that seems a lot of hassle. I would just say to the landlord, “Look, why do you want us to use this particular supplier. What’s the logical reason for that?” They might be getting a little bit of commission, but a pence in a pound, it’s not really gonna make a huge amount of difference.
Simon Zutshi: 06:57 And I’d just appeal to their good nature and say, “Look, we don’t want to use them. We want to these people. When we move out, we’ll give you meter reading”. It’s a very small admin job to be able to move over. I’d appeal to their better nature and if they’re really upset about it, they can say, “Tell you what. After six months or after four months, we can give our notice. You’re gonna lose your tenants”, and actually it might be more expensive in case the landlord has a void period when they have no tenant in place. And they’re gonna have costs of getting a new tenant in. I would go nicely at first, try to appeal to their better nature. If they’re being fussy say, “Okay, we’ll do what you want, but ultimately we’re just gonna leave”.
Joti Patel: 07:33 That makes sense. It’s about keeping it simple isn’t it?
Simon Zutshi: 07:34 Exactly.
Joti Patel: 07:34 Most landlords, like you say, would prefer not to lose their tenant over something like-
Simon Zutshi: 07:38 You want to hold on to good tenants.
Joti Patel: 07:39 Of course.
Simon Zutshi: 07:40 You can put anything you want in a contract as long as it’s reasonable. And there’s another lesson here, which is make sure you always read the contract. If you’re signing it, you gotta make sure you understand what you’re committing to.
Joti Patel: 07:50 It’s amazing how people sign contracts and don’t really understand what they are committing to.
Stefano Lucatel: 07:53 The problem is sometimes that… when Simon says AST’s, Assured shorthold tenancies, people think that all assured shorthold tenancies follow the same model.
Simon Zutshi: 08:02 No they don’t.
Stefano Lucatel: 08:03 They don’t. That’s the point. There’s the basis of the minimum that needs to be in an AST. But then landlords usually expand…
Simon Zutshi: 08:10 Put extra clauses.
Stefano Lucatel: 08:12 They put extra clauses, which mirror the location of the property, the physical actual layout of the property, or whatever. So you’ve got to be very careful and landlords have an obligation to put the minimum amount in an AST contract, with all the notices about all the different things. Have you done this? Have you done that? And now, when Simon and I started off many years ago, an AST Contract in 1988 was something completely different. It’s now totally different, and it’s got a lot more notices at the end of the agreement itself. And the landlord’s have to be very careful that if they adhere to everything, otherwise it can be declared illegal by a first tier tribunal.
Joti Patel: 08:52 And this sounds so second nature to obvious people like you, in the know. But to the average person, we wouldn’t know this stuff until, unless we have shows like this, which give us this insight.
Simon Zutshi: 09:00 That’s a great reason for watching the show.
Joti Patel: 09:01 Absolutely. Thank you.
Joti Patel: 09:03 Question for you Paul.
Joti Patel: 09:04 “My mum wishes to sell me her house that she’s been renting out to the value of £125k. But she said I could buy it for £90k to help pay less stamp duty. Are there any tips that you know of on how I can avoid fees, especially the legal fees, such as stamp duty? I was thinking of putting my name on the deeds and then remortgaging and then taking my mum’s name off the deed.”
Joti Patel: 09:24 What advice do you have Paul?
Paul Mahoney: 09:25 I think you’re over complicating it. If you look at the current stamp duty thresholds, the bottom threshold is £125,000, so anything under that you don’t actually pay any stamp duty. So regardless of whether it’s 125 or 90, there’s no stamp duty payable unless you already own a property. So for example, if you already own a property, you would pay 3% of whatever you’re paying for that property. But it seems as if your first purchase so there won’t actually be any stamp duty payable.
Paul Mahoney: 10:02 So far as mitigating other fees, like legal fees and things. There’s a very broad range of legal fees out there when purchasing property. You can deal with a conveyancer which will usually be a bit cheaper than a solicitor. But you always want to make sure you’re getting the right advice because when you’re buying property you need to make sure that you’re ticking all the boxes, not just for yourself and your own piece of mind. But also for potential lenders, and things they’re going to look out for, which could potentially make your property less valuable. If, for example, there’s any easements or lease concerns, or anything like that around the property, you want to be made aware of it.
Paul Mahoney: 10:44 So seeking the right professional advice. I would say for a few hundred extra pounds or generally it would be in that range to get the right advice it’s worth doing it. Although I understand that sometimes your budget only allows for certain things. So as far as the stamp duty goes, it doesn’t seem like you’ll pay any anyway. Legal fees I’ve spoken about. And look, that’s pretty much the fees that you’re going to be incurring when purchasing this property. So hopefully that helps.
Joti Patel: 11:15 Thank you very much Paul. And thank you gentlemen. We shall take a short break now, and we’ll be right back in just a few moments. Hello and welcome back to property question time. I’m Joti Patel, and just before the break we were joined by our guest panel. We have Simon Zutshi, Stefano Lucatello and Paul Mahoney in Australia. Thank you for coming back to us.
Joti Patel: 11:44 Okay, Stefano, another question for you.
Joti Patel: 11:47 “Do you know what will happen to my Italian property if I don’t have an Italian will after I die?”
Stefano Lucatel: 11:53 Is that it?
Joti Patel: 11:53 That’s it.
Stefano Lucatel: 11:54 Right, okay. Yes, the answer to your question is, yes I do. Italy, France, Spain, Portugal, all have a system of Roman law, which then become the Napoleonic code, developed by Napoleon wherever he conquered nations. And we have a system of civil law in Italy, which is part of the Napoleonic code. Which means that in Italy you cannot live in an Italian will your property as you would in England. So for example, if we were married, usual thing is that husband leaves to wife, wife leaves to husband, and then eventually when the two husband and wife has died, everything goes to the children in equal shares. In Italy you can’t do that. France, Spain, Portugal, all the same.
Joti Patel: 12:33 Oh wow.
Stefano Lucatel: 12:33 Because they have a strict code which says, “What you can leave to whom, and in what proportions, dependent on whom you leave behind”. The idea that was that Napoleon, when he conquered other countries came back to find that the wives of the soldiers had done all sorts of things with the properties that the men who had been fighting aborad, had worked so hard to buy. And in many cases had got rid of the properties. So the law was changed. Napoleon changed the law to favor the children, so there is no situation in Italy, France, Spain and Portugal, and the other civil jurisdictions, which says that you can exclude the children. So it depends on who you leave behind, the child or the children of the family have a certain percentage that they would automatically inherit.
Stefano Lucatel: 13:15 Now this is the intra, and it’s something that we can almost now sweep away because of new legislation which came into effect in 2015 for the European Union. Although the United Kingdom derogated out of this, which mean it didn’t sign up to it, it’s still part of it and it still uses it and it’s something called ‘Brussels IV’, or regulation 850/2012. And it’s European succession rules, which say, “That I can, as the United Kingdom citizen…”, in this case, “leave my foreign property in accordance with…”, I would think, “United Kingdom law”, which is better than Italian law. It doesn’t stop you from having to pay your beneficiaries when you die. Paying Italian succession tax, because they don’t inheritance tax, it’s completely different abroad. But it allows you to leave your foreign property in accordance with English law which means you can leave your property to your wife in its entirety, excluding under Italian law as it would be, a child or children of the family. So you can do that.
Stefano Lucatel: 14:17 Many years ago before 2015 came along, as lawyers we used to say, “If you’re buying a house in France, Italy, Spain or Portugal, English will and Italian Will. English will, French will. Etcetera, etcetera”. Now you don’t need to. There is a lot of debate, I have to say between us lawyers as to whether this European succession rule means that you can do just one will. My view is that you can make one will which is European Union will. It can cover your foreign property, it also means if you buy other property abroad you don’t need to make another will in another country, because that will that you’ve made will be valid for the other countries. One note of caution again to repeat is that, just because you change the law in which you leave your property, it doesn’t mean to say that you will not have to pay, or your estate will have to pay, succession tax when you die in that country.
Stefano Lucatel: 15:05 My advice to them is, make an Italian will if you want to, make an English will if you want to. But the best solution is make a European Union will under the succession rules of what’s called ‘Brussels IV’.
Joti Patel: 15:15 There’s so much too think about. Who would have even considered that, but it’s a relief for people from here who are buying over there. But if you’re Italian, living in Italy, and you don’t even get on with your children. You’re saying that they still get.
Stefano Lucatel: 15:25 Of course the Italians can do it the other way round. The Italian can leave his Italian property in accordance with English law, if he wants to. Or French law, Spanish law, whatever suits them best. It’s just that we can’t. The United Kingdom always derogates from something in the European Union. Our chancellor of the exchequer said, “I’m not going to allow you to leave your English property in accordance with Italian law”. Why? Because if you think about it, at death, the chancellor of the exchequer would lose out on a whole load of inheritance tax.
Joti Patel: 15:49 Of course.
Stefano Lucatel: 15:49 It would go abroad.
Joti Patel: 15:50 What do you think Simon? Is that something you knew already?
Simon Zutshi: 15:54 I didn’t know about the situation in particular, over in Italy. I think it’s interesting, we get all these laws from Brussels and it’d be interesting to see how things change when the UK finally comes out of the European Union. What’s gonna change? What’s gonna stay the same? I guess watch this space.
Stefano Lucatel: 16:09 This one won’t change. People ask me on a regular basis whether Brexit will have any effect on the European will. No it won’t, because it’s not a political device. It’s a point of private international law, which is totally disconnected or unconnected with, whether we are in or out of Europe.
Simon Zutshi: 16:27 Yeah, okay. Interesting.
Joti Patel: 16:27 Well that’s good to know. That’ll give some reassurance to viewers out there watching and thinking about buying homes over there.
Simon Zutshi: 16:32 It just also goes to show how you need someone who understands the local market, rather than trying to figure it out yourself. It’s a mind field. It really is.
Joti Patel: 16:38 Of course. Well thank you for sharing that. Simon.
Joti Patel: 16:42 “I’m a new owner of a occupiable four-bedroom house and I’ve lived there for thirty years. I’m thinking of renting a couple of bedrooms out as I’m studying and my income has considerably reduced. If I rent out two of the spare bedrooms, does that mean the property will be a HMO? If so, how different is that from having just one lodger? Thank you in advance for any advice”.
Simon Zutshi: 17:01 Okay. Couple of things there. First of all, you’re perfectly within your rights to rent out rooms within your home. In fact the government actually encourage it. They have a tax incentive called ‘rent a room scheme’. Where this tax year you can earn £7500 tax free by renting out rooms in your home. So actually if someone is in a situation where they don’t quite have enough income, if it’s the right kind of family mix, that’s a really good thing to consider.
Simon Zutshi: 17:24 Now interesting, in regard to a HMO’s. Technically, an HMO definition is actually three or more unrelated people living in a house. So if you live there and rent out two rooms, technically, that will come an HMO. That doesn’t mean though that it needs an HMO license. In October 2018, the regulations changing, such, that if you have house of five or more people you would need a HMO license. Each council interprets the government guidelines in a different way. So what I suggest is this viewer contacts the local council, explains the situation to them and says, “I don’t think I need to, but do I need to get a license or register this at all?”. I don’t think they need to do that, but always worth checking.
Simon Zutshi: 18:09 The other thing I’d mention is also when you have a lodger in your house, that’s not like a normal tenant. You wouldn’t have a AST rental contract. You’d have a special agreement with the lodger, and it’s a bit more like a license really. So if they didn’t pay your rent, you could actually get rid of them much quicker. Hopefully that wouldn’t be the problem because hopefully they’re people you need, they’re friends, or people. But do make sure you have an agreement and you have a contract because sometimes people allow a friend to come and stay, and unfortunately friends sometimes takes advance of each other.
Simon Zutshi: 18:43 If you have someone living in your house, make sure you have the correct paper work. have them signed up to an agreement, so you know where everyone stands.
Joti Patel: 18:50 So they are legally binding even though they know this person?
Simon Zutshi: 18:51 Yeah absolutely. I’m sure you’ve got some things to add to that.
Stefano Lucatel: 18:54 Well. The other thing I was gonna say is that, yes when you have a lodger it’s more like a kinner to a license because you have an informal agreement, it’s not regulated. You can give a shorter or as longer notice as you want-
Simon Zutshi: 19:03 Some would say it’s like a hotel, a bit like that. If you don’t pay your bill you’re out basically.
Joti Patel: 19:07 Of course.
Simon Zutshi: 19:11 So you don’t have the normal-
Joti Patel: 19:12 Could be awkward. Sorry.
Simon Zutshi: 19:12 Sorry.
Joti Patel: 19:12 You first.
Simon Zutshi: 19:13 They don’t have the normal rights that a normal tenant would have under a AST contract. So don’t go giving lodgers AST contracts.
Stefano Lucatel: 19:20 And the other thing to say on the tax side of things is, don’t try and be clever with the £7500 relief, because there are many people who think they’ve got three or four in, and one of the lodgers may give them £7500 in a year and they don’t declare the other two. So be careful that the tax man doesn’t come. Sometimes they sit outside your door and they’ll watch what happens, and then they come back to you and say, “Well as far as we’re concerned, you’ve earned £20,000, £30,000”. And then it’s up to you to prove that it’s not true.
Simon Zutshi: 19:51 Don’t be greedy. Take the £7500 tax free and just declare the rest.
Joti Patel: 19:54 Absolutely. Okay, well thank you for that. And final question to Paul.
Joti Patel: 19:59 “I’m currently in the process of getting a buy-to-let mortgage, which in time I would like to turn into a residential mortgage. The property is in need of works and an extension. Am i able to do this while it’s on a buy-to-let mortgage, or will it affect me when I come to changing it to residential. Any help is appreciated”.
Joti Patel: 20:15 What are your thoughts Paul?
Paul Mahoney: 20:17 Good question. The potential issues that you might have, given that you mention that it’s in need of a lot of work, will really depend on how much work it’s in need of. Because whether it’s a residential or a buy-to-let mortgage that you’re looking to take on this property. The lender will send out a surveyor and that surveyor will need to say the property’s habitable for you to get either of those types of mortgages on the property.
Paul Mahoney: 20:47 Or in some cases the lender might put in place some requirements, some things that you might need to do first to be able to get the mortgage. Without knowing the level of work that needs to be done, or the severity of that work, and whether that affects the habitability of the property. For example, doesn’t have a working bathroom and kitchen are two things that a lender or a surveyor will want to see for you to be able to get a mortgage at all. So far as taking a buy-to-let initially and switching it over to a residential, so long as you can get a buy-to-let mortgage you shouldn’t have any issues then switching it over to a residential.
Paul Mahoney: 21:33 The question in my head would be why you’re looking to do that initially? And what the benefit is of doing that? That wasn’t part of your question so I can’t answer that, but assess all your options and seek some advice on what those options are, because you might have a narrow view of what those options are, but there might be other things out there that could work better for you and help you achieve the right outcome.
Joti Patel: 22:02 Thank you so much Paul.
Joti Patel: 22:04 Right, well sadly that’s all we have time for today on property question time, but as always please do keep in touch. Send us your questions via the website www.property/tv.co.uk or you can email us at email@example.com.
Joti Patel: 22:20 Finally my thanks to our special panel today, Stefano Lucatello, Simon Zutshi and Paul Mahoney, and from me, Joti Patel. It’s been a pleasure. Thank you so much and we shall see you again soon.