Lucia France: Hello and welcome to Property Question Time, the show where you ask all the questions and we give you all the answers about anything relating to property. I’m Lucia France, and joining me in the studio today we have Tony Gimple who is the founding director of Less Tax for Landlords. We also have Joanna Leggett. Who’s the founding partner of Leggett Immobilia. And we also have Paul Mahoney, managing director of Nova Financial Group. So hello everyone. Welcome to the studio and thanks for joining us today. So we’ll get straight in. We’ve got six questions today. Tony your first question here. They’re all quite lengthy today, so bare with me. I’ve been a landlord for 20 years and having taken early retirement I’m now working full-time in the property business. My company pension is good enough to make me a higher rate tax payer, but now that all my previous property-related losses have been used up (I’ve been improving my stock to make sure that my tenants are with me for the long term) my current accountant reckons that now because I’m being taxed on turnover and not profit, my tax bill will over double. He worked out that by the time I get to the 2020-21 tax year, my tax bill will be more than my profit. And I’ll be taxed in advance of earning it. Surely that can’t be true? Advice please.
Tony Gimple: Yeah, sadly it is. Surprisingly the tory government decided to attack through very heavy taxation. What is now one of the largest suppliers of private semi social housing in the country. It was designed to take some heat out of the lending economy, so we didn’t get what we had last time around. And to put more properties for first time buyers on the market. But the law of unintended consequences has shown that people who are being pushed into higher rate tax because they’re having the relief on what they can claim, they’re not being treated as proper businesses. Means that in a very few years, due to the tax escalator effect, they will be paying far more tax per year, and in advance and that will have serious consequences. In fact we’re seeing landlords who are doing it for donkeys years, literally being forced out of business. There’s a whole load of unseen consequences as a result. Breach of tenancy agreements. Where’s the public purse going to find the money to rehouse them and so on. And it’s all done simply to political aims really. And the landlords are not the flavor of the month anymore.
Lucia France: No, no it doesn’t seem so. So what advice would you give this person who’s written in to try and reduce that tax bill? Or is there anything that they can do?
Tony Gimple: There’s lots they can do. The first thing is to work out what actually it is they want for themselves. People end up as the accidental landlord, with no clear business goal. So think about what it is you want to achieve. Then start to talk to people who can bring all the various advice threads together. Tax consultancy, accountancy, estate planning, business planning, Financial Services. And then have a look at structure. should you stay as you are? Should you perhaps consider going down a limited company route? Or have a look at something called mixed partnerships. Which as long as they’re not done for tax reasons, are still perfectly valid. And will help that particular questioner survive the tax changes, and go forward, running a very successful professional property business. Which is capable of being passed on to their heirs. And still do what they intended to do, which was house people.
Lucia France: So can you just explain a little bit about the mixed partnership suggestion that you made there?
Tony Gimple: Well a mixed partnership is a combination of an individual and actual person. Who now is a member or partner in a limited liability partnership along with a limited company, as one of the partners. Hence called mixed. A mix of the natural and artificial persons.
Lucia France: Fantastic thank you very much Tony. Moving on to Joanna. Hello, welcome. Joanna, another long question here, so bare with me. I sold my house at the beginning of January 2018. So I no longer own a property in France, the house in France here obviously. And I’ve noticed my French bank account, luckily I kept that one going, that a total of 100 euros has been taken on the 15th of each month since, for the usual tax fonciere, and tax d’habitition. Now I did think it was up to the notair to advise the tax office about the sale, but clearly I was wrong. So I wrote to my erstwhile local tax office on the 31st of February enclosing the notair’s confirmation of the sale, and asking them for a refund. Predictably there’s been no reply to my letter, but my new bank statement received shows that another 68, and 32 euros are going out on the 15th of April. Should it have been up to the notair to inform the tax office? I presume my buyers must be delighted to be having a tax holiday.
Joanna Leggett: Well this is quite a common problem in France. The law was put together 100 years ago by a mathematician that probably lived in the Champs Elysees. Thankfully it’s going to change with Macron, probably by about 2020. But what happens is whoever is in the house on the 1st of January, is liable for the tax d’habitation for the whole year. So even if they bought it or sold it on the 2nd of January, they still owned it on the 1st of January, they are liable for that tax.
Lucia France: Right.
Joanna Leggett: However for the tax fonciere, it’s liable to the new buyer, and it’s done on pro rata, so realistically the new buyer should have given a check at the time of the point of sale in the notair’s office for the next 12 months. But because it was January they probably haven’t received the bill for it yet. So it doesn’t come out until around about August. So when it comes in in August, you could take the document back into the notair’s and ask them to collect the refund from the buyer. As of the following year, both of the new taxes will go into the new buyers name.
Lucia France: Right, okay. And you said that this is going to change coming up to 2020. What’s going to change there?
Joanna Leggett: The thing that’s going to change is the habitation law that whoever is in the house of the, you know from the first of January, that is going to change. So that it will be exactly the same as tax fonciere. It will be pro rata. To whichever month you buy it, then you obviously take over the taxes from that month.
Lucia France: It seems a lot fairer doesn’t it?
Joanna Leggett: It does. I mean that’s why we tend to see lots of sales being rushed through by the end of December, so that they’;re not going to be liable for the tax habitation for the whole year. Or buyers trying to drag it out till January, so they’re not liable for it. But it’s a silly old law, and it is going to be changed we’re hoping around about 2020. Hopefully when Macron pushes that through.
Lucia France: And is there a way that people can you know maybe speak to the buyer or the seller, if they find themselves in this situation. And they can kind of work out and say hold on, I’m only in it for three months and you’re in it for the next nine months.
Joanna Leggett: Yeah usually, I mean obviously with the tax habitation you don’t have any choice, it’s just the law, and whoever’s in the house has to pay it. But the tax habitation, if both the buyer and the seller are at the notair’s office at the point of sale, when they’re signing the final act, usually, and in most of the cases, I’ve been in, the notair has asked for a cheque for the final months. However that would only happen if the bill had already come in. So the bill wouldn’t be due until August. So their paying monthly. So when it comes to August and that bill comes in, then you could take that bill back to the notair and ask them to claim from the new buyers, or the new purchasers.
Lucia France: Right. And do think they’d be likely to get that?
Joanna Leggett: Well they will have to. But it’s not the tax office that will refund, it has to be the buyer. So the buyer will owe the amount to the tax office. But the tax office won’t refund.
Lucia France: As with anything with tax it’s all a bit complicated.
Joanna Leggett: Yes, especially French.
Lucia France: Anything to add there Tony?
Tony Gimple: Other than the fact that it’s complicated because it’s French, no. That’s just the way things go I’m afraid.
Lucia France: Let’s leave it there. Thank you. Okay, Paul welcome. So after moving back home for a few years and letting my flat, I now want to buy a small freehold house to live in. My tenant doesn’t want to move but I’m finding it impossible to sell to an investor in the current market. So if I sell, she will have to go. I have no pension plan, and had thought the flat could replace that. However I’m finding it difficult to refinance the flat in order to release the equity to buy the house. I would also have to find the 3% stack tax. So based on the above, should I try and keep the flat, or sell it, no longer be a landlord and have much more equity in the house I intend to buy, what do you recommend?
Paul Mahoney: Okay. The answer is obviously dependent on various sort of variables which aren’t really in the question. It seems, well firstly they’re struggling to sell. Why is that? They said they’re struggling to sell to an investor, why are they not considering owner occupiers? Maybe there’s not a market for it. I’m not sure obviously. But if they’re struggling to sell, they’re also struggling to remortgage it. Again why is that? Is it just because there’s not the equity in the property? Does the yield not stack up? There could be various reasons for that as well. Generally I would say when it comes to sort of owning a property and accumulating more properties, you’re always better off if you can make it a viable investment. If it just doesn’t stack up than of course you just shouldn’t keep it.
Paul Mahoney: But if it can be made into a viable investment, you’re always better off keeping properties than selling properties. Because selling properties is expensive. There’s lots of costs to both buying and selling property. So if they could acquire the new home, and keep the existing property and make it a viable investment, than it’s generally better to keep it. But in saying that, the two issues that they’re incurring so far as trying to sell and trying to remortgage could potentially mean that it’s not a good property to keep as a buyer to let. So it’s a difficult question to give a definitive answer to because there’s probably not enough information there.
Lucia France: Yeah it’s quite a general kind of idea there.
Paul Mahoney: But the last point so far as should I sell it to have more equity in my home as opposed to keeping it as a buyer to let, again generally I would say that you’re better off utilizing the equity in your home. Than just having a lower mortgage. If that makes sense. I think far too many people focus too much on reducing the home loan whilst not building an investible asset base. And they spend their whole life paying off their home, they get to the age of 60 and they have a debt-free home but no investments. So therefore no means for income. Which obviously isn’t ideal. So debt should really be split into two types. Good debt and bad debt. You know good debt is investment debt. It helps you better utilize your resources and your money. It helps you achieve financial goals. Bad debt is personal debt, which is your home loan. But if part of your home loan is being used to invest, than that part should be considered good debt.
Lucia France: Yeah.
Paul Mahoney: If that makes sense?
Lucia France: Finding a balance between-
Paul Mahoney: Finding a balance between the two and separating it in your own mind so far as what is good debt and what is bad debt.
Lucia France: Right.
Tony Gimple: And the other point on that is why would you want to sell an income-producing asset? Because you’ve got all of the transactional costs, potential of capital gains tax, stamp duty, legal fees, et cetera. So any investment you now buy to replace that, not only has got to give you a better return, but somehow it’s got to make up for all of the transactional cost.
Lucia France: Yeah, for sure. Guys, I’m going to have to hold it there. That’s all we have time for this half of the show. We’ll see you back after the break.
Lucia France: Hello and welcome back to Property Question Time. Tony Gimple, Joanna Leggett, and Paul Mahoney are all joining us here in the studio today. And we’ll get straight on with our next question for Tony because we made the first off exactly on time, so we’re very happy about that. Okay, Tony, a lot of my buy to let mortgages are coming to the end of their term, but my mortgage broker is saying that because of something called S24 and the new PRA buy to let rule, lenders are asking to see a business plan as well as wanting to know about all my other mortgages. And not just the ones I want new deals for. He also reckons that it’ll be easier to get mortgages as a limited company, but I’ve heard that I’ll have to remortgage all of my properties, and not just the ones whose terms have expired. That sounds very expensive, so what should I do?
Tony Gimple: Well you got a complex compound question there. Putting properties into limited companies is difficult, can be expensive. It’s a one way street. You can no longer get what’s called advance clearance for Section 162 incorporation relief. Holding over capital gains and no stamp duty. So that needs to be examined very carefully. The bigger point however is the lender asking to see business plans, looking at the entire portfolio. They also look to see the impacts of the new tax regime section 24. Removal stroke capping of mortgage interest relief. Because in effect you’re now being treated as a business. Whether you have a limited company, or whether in your own name, the lender needs to make sure that you can service that loan for the long-term. Particularly if it’s interest only. So how are you going to cope with voids? Dilapidation’s? What impact will taxation have? Which is having quite a dramatic effects across the piece. In effect the more tax you pay in advance, the faster the tax escalator goes, the less profit you’re actually making. Therefore you’ve got a huge problem from the lenders perspective.
Lucia France: And do you think that this person, I’m not sure if it’s a guy or a girl, that it will be easier to get mortgages as a limited company? Is that necessarily true for them?
Tony Gimple: It’s not necessarily true. And on the surface, what may seem easier, can easily be much more complicated. Particularly if I find out two years after the event, that incorporation relief wasn’t granted.
Lucia France: Right.
Tony Gimple: And then you’ve got personal guarantees for the shareholders, the directors. So what may be an easier path, is more complex. In any event, mortgage advisor, is not authorized to give that advice. Because that’s tax advice, and they won’t have the professional indemnity insurance to cover it.
Paul Mahoney: And just on that, the advice they’ve given seems to be wrong. Because the PRA rules applies to both individuals and limited companies. So regardless of whether they’ve got it in their own name, or they’ve got it in a limited company, if they have four or more properties, the business plan and the overall review of their portfolio, will apply regardless.
Lucia France: Right okay.
Paul Mahoney: In actual fact, there’s less buy to let mortgage products for limited companies than there are for individuals. So it’s probably the opposite of what they’ve been advised.
Lucia France: So maybe take some new advice here?
Paul Mahoney: Yeah, perhaps take some new advice on what works. But I completely agree with Tony, so far as putting them into a limited company just for the sake of mortgages is just a bit silly because there’s going to be costs in doing that. There are reasons potentially for putting a property in a limited company, but it shouldn’t be for the purpose of getting a mortgage.
Lucia France: And is it, they seem to think that they’ll have to remortgage all of their properties.
Paul Mahoney: That’s not correct either.
Lucia France: Just the ones who’s terms have expired. And that seems a bit-
Paul Mahoney: If they were to move them from their own name to a limited company, they would need to remortgage them in doing so, because it’s essentially a new entity that owns the properties. They would be selling the properties to the limited company. You can’t just move them. And obviously there’s all the frictional costs that go along with that. There obviously are, there’s a massively growing market for buy to let mortgages within limited companies, and there’s strong demand in that area. But you want to be doing it for the right reasons.
Lucia France: Thank you very much. Okay, Joanna, another long question for you here. So I’ve had a home in France in Lassay les Chateaux for about 20 years. It’s too big for me now as my five kids have grown and even when they do go back for the odd break, it’s usually just as a couple. So I’m starting to think about downsizing and finding a smaller property in the village. I’ve had two MO’s come and give me evaluation, which have a pretty wide variation of 40k and 55k including fees. Both of them opt to charge the fees to the vendor roundabout 9%. I’m not really in a position to try and sell it privately as I’m not there often enough to arrange viewings. So I would like to have it with at least a couple of agents. Having never sold in France before, any advice on how best to proceed with the agents? Being realistic I’d like to come out of the deal with 40K before taxes. I’m not sure how the agents would react if I asked one to go up and one to come down, to try it on the market at 45k including fees.
Joanna Leggett: Well firstly, yes you can go with multi agents in France. There isn’t any you know difference in the costs that they charge. I would recommend, because it’s a holiday home, A, to find out about capital gains tax as well because depending on what she paid for the property, there may be capital gains tax involved as well. However because she’s had the property for 20 years, it used to be 15 years and there was no capital gains tax but unfortunately they’ve raised it to 30, but it is pro rata. So there will be a little bit of tax to pay on that as well. Then I would suggest if she does want to go exclusive with one agent, which usually they do work very hard in the first three months of exclusivity. After three months you can change and go with multi agents. So that’s another good idea as well. If you’re going to look at going with more than one agent. I would use one local agent that’s in the village or in the town, because people might be walking around and will see it in the shop window. And then I would use an international agent that covers all countries.
Joanna Leggett: Particularly with that price range. Because it’s very cheap, and it’s a real bargain price and so many international buyers are looking for holiday homes at that price. So to look into what the agents doing from a marketing point of view. What portals they’re on. Where they’re going to advertise the property. And then you’ve got the best chance of getting, A, somebody local who might be passing through the village, but also getting somebody international.With regards to the price, I’d keep it the same with both agencies. Agencies can negotiate slightly on their fees if they need to, to help the sale go through. 9%, between 9 and 10% is quite normal, on anything under 50,000. But the agents in France do a lot more than what they have to do in the UK. They take care of a lot of the conveyancing.
Joanna Leggett: They set up the [inaudible 00:19:16] which is the initial exchange of contracts. A lot of agents can do that in house. And as you say, you know, if the lady’s not there for viewings, the agent will accompany every buyer on the viewing, will open up, do the shutters, do the photography. Also keep an eye on the property and let you know if there are any faults or there’s been a big storm and something now needs changing, et cetera. So yeah I would choose two reputable agents, perhaps one local, one international. Keep the price the same. Maybe put it up a couple of thousand, so there’s a little bit of room for negotiation. And also look into the capital gains tax.
Lucia France: And here, because she says that she would like yo sell it privately but doesn’t seem to have the time or isn’t there often enough, what would you advise if someone was going to go down that route of a private sale completely without an estate agent?
Joanna Leggett: Yeah you can. A lot of the French do that. In fact 50% of the French in France go sell privately. If they’re selling in a town and it’s in their own town, they know the system, the system in France is quite straightforward. But you have to have the time. You’ve got to have the time to do the viewings, particularly at weekends and things like this when clients might be coming over. It’s not so difficult if you’re living in the property. But yes it can be done. You just work directly with the notair. And in France, they don’t use solicitors. You don’t need a solicitor, you just work directly with a notair. You can do it that way as well. But from a negotiating point of view, it’s always a little bit tricky negotiating on your own property. So an agent will help with that. And the conveyancing, and getting all the searches and the tests that need to be done before the sale can go through.
Lucia France: So Paul, your last question for today. I am currently renting a property. I have a new business, not currently in profit, and my husband makes 35k basic a year, but his credit rating is low. We have no savings. I have inherited my father’s house. It’s in poor condition and needs investment to bring to a good value worth approximately a 100k at the moment, but I couldn’t afford to renovate it myself, as I estimate I would need 30k to do so. I think I may just have to sell at bottom value. So ideally we would buy something, however we can’t get a mortgage and cannot find a property large enough for that value. We live in Cambridgeshire. I’ve considered a buy-to-let on the small flat to hold the investment and make a small amount back. Would you say this is a good idea?
Paul Mahoney: I’d say firstly they’ve decided or come to the conclusion that they can’t get a mortgage. I’d make sure that’s actually the case. What a lot of people do is they go and speak to the local bank, and their local bank says no. And then they decided that there’s no mortgage options for them. There’s a very broad range of lenders out there. Speaking with an independent advisor will allow them to explore all of those options. The fact that the husband has a salary but a low credit rating, doesn’t necessarily mean that a mortgage isn’t an option. Especially with the likes of bridging lenders and those sorts of people. They said they need to do some work to it. They have an asset. They have some income. A bridging lender would likely look at that commercially and probably charge them a lot for the loan, but if it’s worth doing, and makes them money on the renovations, than perhaps that’s an option worth exploring.
Paul Mahoney: Again a broker could help them do that, the right broker anyway. So far as keeping it as a buy to let, I’m not sure what they meant there, but keep both options. Keeping as a buy to let, again, could work. But they probably have to, it sounds like they’d have to do the renovations first to make that a viable option. Selling it to buy another buy to let, again could be worthwhile as well. If they canty find the money to do the renovations. If they can still pull out 100, or maybe 70, depending on what that lower value is. Investing that in a buy to let, could be an option. And again, potentially that could be an option where mortgages might become available because buy to let lenders tend to be a little bit more flexible than residential lenders.
Lucia France: Yeah.
Paul Mahoney: So there’s various things that they could do. I’d say firstly determine their mortgage options definitively. And then probably speak with an advisor so far as what their options are so far as either keeping it or selling it to buy again.
Lucia France: Like you said before, we were talking about another question earlier, it seems it would be a good idea to hold on to it if they can. And get the work done.
Paul Mahoney: If they can do and they can make it a viable investment yeah. But taking that money and investing it in a buy to let, whether it be with a mortgage or as a cash purchase, could be a good option as well.
Lucia France: Great, okay Paul thank you very much. Thank you to everyone in the studio today. Tony, Joanna, and Paul. And that is all we have time for but please do make sure you get in touch. You can get in touch via the website property-TV.co.uk. Or email us at firstname.lastname@example.org. Thanks to all our guests for today. Thanks to you for watching and we’ll see you again next time.