Lucia France: 00:14 Hello, and welcome to Property Question Time, the show where all your questions about property are answered by our panel of experts. I’m Lucia France, and joining me in the studio today we have Tony Gimple, who is the Founding Director of Less Tax 4 Landlords, welcome Tony. We’ve also got Joanna Leggett, Founding Partner of Leggett Immobilier, and Paul Mahoney as well, Managing Director of Nova Financial Group. So welcome everybody, and thanks for joining us today.
Lucia France: 00:42 As we haven’t got much time, we will just crack on with the first question to you, Tony. “As a moderately successful landlord, I recently went to a seminar about becoming an expat, but whilst living in the sun and not paying any tax seems like a good idea, I’m worried that I might still be subject to UK tax. What would you advise?” Where to start?
Tony Gimple: 01:05 Somewhere where the sun shines all year round and the sea is warm would be good for a start.
Lucia France: 01:10 Definitely.
Tony Gimple: 01:11 Becoming an expat is a lovely dream, but if you’ve got any intention whatsoever of returning home, if you’ve got family here, if you’ve got properties here, you are still going to be subject to UK taxes. Being an expat is a much misunderstood subject. There’s a limited number of days you can spend here a year before you’re deemed domicile or resident, and both of those terms have complexities with them.
Tony Gimple: 01:41 With all of this, you got to look at your motivations, and if it’s solely about paying tax, you’re making the wrong decision, and certainly since the Panama Papers scandal, there are real problems. If you want to go, you’re giving up everything in the UK. If you’re going to live, be resident, domicile somewhere else, then yeah, get on with it, but if there’s any intention to return, or you’re going to have property here, then you will find yourself still in the UK tax trap.
Lucia France: 02:10 Here they do seem to think … They actually say, “Whilst living in the sun and not paying in tax seems like a good idea.” I mean, wouldn’t they have issues even if they did completely leave the UK, they’d still have to pay tax wherever they move to?
Tony Gimple: 02:23 It depends where they move to, but generally speaking, yes. Some countries offer great deals. I think Portugal gives you tax free for 10 years on anything earned outside of Portugal.
Lucia France: 02:37 Right, okay.
Tony Gimple: 02:38 Others you can buy a passport and get certain deals, but in order to live in anything approaching a civilized country, you’ve got to pay a [inaudible 00:02:46] of tax to keep the lights on, and so on.
Joanna Leggett: 02:49 Also, for healthcare systems. For example, in France, to become a French resident, you need to be there at least 183 days, and if you want to get into the healthcare system, you’ve obviously got to be paying some sort of tax.
Joanna Leggett: 03:02 Then you’ve got to also think about is if you do have homes in two countries, one of them is your main residence. When you sell the other one, you’re going to be liable for capital gains tax. So that’s the other option to look at, which country’s going to offer the best for that.
Tony Gimple: 03:16 Correct.
Lucia France: 03:16 Why is it that you think that people do have this kind of rosy view of moving abroad like that, that it is all tax free? Obviously things have changed, haven’t they?
Joanna Leggett: 03:25 I wouldn’t say that … I mean, our clients particularly, the reasons people come to France is for the lifestyle, it’s certainly not for the tax, because sometimes the taxes can be higher than what they are in the UK in certain fields, but France is mainly about lifestyle, so I don’t think it’s all about tax.
Tony Gimple: 03:41 It also gets to a point like me, coming up to 59, where I should have thought of being in the sun more than the cold. It’s very appealing.
Lucia France: 03:49 Definitely, yeah, couldn’t agree more. Thank you very much, Tony. Okay, Joanna, another French property question here for you. I’ve heard that house prices in France escalated last year. I was thinking of buying, but have I missed the boat for getting a good investment property in France?
Joanna Leggett: 04:07 You certainly haven’t missed the boat, because if you bear in mind the prices haven’t gone up at all in probably nearly eight to 10 years, so they really were at rock bottom. It’s the same with say in London, for example, some areas will go up, and other areas won’t.
Joanna Leggett: 04:21 As a whole, they’ve gone up about 7% across the country. Some areas haven’t gone up at all, and you can still get some really good bargains, but if you’re looking for an investment property, then you probably are going to be in areas that are going up, so now would be the time to buy, because not all of France is good for investment. It is a lifestyle choice, as I was saying earlier.
Joanna Leggett: 04:40 For areas like the ski resorts, where you’ve got all year round rental, Paris, the Cote d’Azur where there’s holiday rental all throughout the year, they’re good areas for investment, but the prices are still very, very low compared to other countries, so it’s still a very good time to buy.
Lucia France: 04:55 Do you see that same sort of a percentage increase happening again this year, or over the next couple of years?
Joanna Leggett: 05:00 They’re gradually going up, they’re gradually going up. Interest rates are as low as they ever have been, so a lot of the French are buying properties where they may have been renting before, so this is making the property market prices go up slightly. They’re not going to go up dramatically, but they are still going up quite slowly.
Lucia France: 05:20 Yeah, so they’re creeping up.
Joanna Leggett: 05:21 It is still a very, very good time to buy. It’s a buyer’s market.
Lucia France: 05:24 Would you say that those areas where you think it’s better for an investment property, like you mention, Paris, and anywhere around the Alps and things like that. Are they going to go up more sharply?
Joanna Leggett: 05:35 No, it’s quite steady in France. You don’t get the peaks and troughs like you do in the UK, massive highs and massive lows. It is quite smooth, so I think I wouldn’t worry at the moment. If you were looking at perhaps five years time, then yes, of course the properties would be a lot higher then.
Lucia France: 05:49 Yeah, okay. Lovely, thank you very much, Joanna. Okay, so your question here, Paul. “I’m in the process of re-mortgaging a property and changing from a personal mortgage to a buy to let mortgage. Also in this process, I’m looking to add my partner onto the mortgage. Will there be stamp duty owed on my partner’s half of the property if we do this?”
Paul Mahoney: 06:07 Okay, so they’re currently on the property on their own, they’re changing from a residential mortgage to a buy to let, and then adding their partner in the process.
Lucia France: 06:13 That’s right, yup.
Paul Mahoney: 06:17 Firstly, it depends on whether they’re married.
Lucia France: 06:19 It doesn’t say, I’m afraid.
Paul Mahoney: 06:19 If they’re married, in the eyes of HMRC, they’re considered a joint entity for stamp duty purposes, so they wouldn’t be stamp duty payable in adding the partner to ownership, but they only mention about adding them to the mortgage. They will also need to add them as an owner. That could be either as tenants in common, or joint tenants, meaning you’re tenants in common, they could give them 1% of the property, or 99% of the property, or whatever they want. It doesn’t … well, it does matter, but that would be determined by what they want to do.
Paul Mahoney: 06:48 Joint tenants would be just 50/50. So if they’re married, that’s pretty straight forward. A conveyancer can do that for them, and there generally wouldn’t be stamp duty payable. If they’re not married, then there probably would be, because whether they’re selling or gifting, stamp duty would be liable, because it’s-
Lucia France: 07:04 It’s a separate entity kind of thing.
Paul Mahoney: 07:06 … a separate entity, gaining ownership. Other things to consider is they said they’re changing from a resi to a buy to let. I assume that means they’ve got another place to live.
Lucia France: 07:17 It must.
Paul Mahoney: 07:17 It must do.
Lucia France: 07:18 Again, it doesn’t say, but I imagine [inaudible 00:07:19].
Paul Mahoney: 07:19 A lot of lenders are very skeptical of people that just change from residential to buy to let if they haven’t bought elsewhere, and even if they have bought elsewhere, they’d need to prove they’re actually going to go and live there, because sometimes people will do what’s called a backdoor buy to let, meaning they get a buy to let mortgage, but then they go and live in the property. The reason they’d sometimes do that is it’s easier to get a buy to let mortgage than a residential mortgage.
Lucia France: 07:45 Oh, right. But if you were found to be doing that, what would be the consequences?
Paul Mahoney: 07:52 You’d be breaking the terms of the mortgage, so the lender could recall the mortgage. It’s technically not legal. They wouldn’t sue you for it, but they would be within their rights to recall the mortgage, and force you to repay it straight away.
Lucia France: 08:03 Right, okay. Yeah, so probably not a good idea. If this particular person, if they aren’t married, if they and their partner aren’t married, would you say let’s get the wedding [inaudible 00:08:13] going?
Paul Mahoney: 08:14 It depends on what the stamp duty is. I know they don’t mention the value of the property, but if it’s a high value property, the stamp duty could be fairly significant. If it’s low value, it could be fairly insignificant.
Lucia France: 08:23 Okay. So it depends on the price of the property.
Paul Mahoney: 08:27 It depends on the price of the property as to what their liability would be.
Tony Gimple: 08:29 And if there’s a mortgage, the consideration for stamp duty perhaps is in fact the mortgage. The joint tenants and tenants in common, typically when setting up a tenancy in common, so you’ve got two separate personalities, it would be 50/50, and you can split it either ways, but for equalizing the income using something called Form 17, actually, the split doesn’t matter, because I can own 99%, Paul can own 1, but I could still allocate 99% of the income using Form 17.
Tony Gimple: 09:02 What they’ll have to do if they do go down the tenancy in common route, critical they have wills, and critical they have lasting powers of attorney for their property and financial affairs, because if they’re not quite dead and they’re not quite alive, the spouse, or civil partner, or somebody you’re just shacked up with or in business with, can’t sign on our behalf without going to the Court of Protection, which used to be known as the Masters of Lunacy. So it hasn’t changed that much in terms of the bureaucracy.
Lucia France: 09:29 Right, okay. So supposing that was the case and they aren’t married, just definitely make sure you get all your affairs, like will, et cetera, in order.
Paul Mahoney: 09:39 It also raises the question as to why they’re adding the partner. If they’re not married, adding a partner to ownership and to a mortgage makes that partner jointly and severally liable for that mortgage. If they split up, that can be a nightmare. So why they do it, they don’t say why, but it’s worth asking the question as to what the logic is to doing it.
Tony Gimple: 10:01 And you get the same thing when you try to give properties to children. You get exactly those same problems cropping up. Forget the tax, if the child screws up, gets divorced, goes bankrupt, whatever, you’ve suddenly lost the asset. It could be really problematic.
Joanna Leggett: 10:16 We do have that problem in France as well, whereby the parents put it into the children’s name, but they’re living there as residents. Now, they wouldn’t have to pay capital gains if they sold it, but the children do, because they don’t live there. So it’s definitely worth looking into.
Tony Gimple: 10:29 Yeah, whereas actually here, there’d still be a potential CGT liability, but no money changes hands, because it’s consideration, and there are inheritance tax issues here by doing that.
Lucia France: 10:39 I guess that people don’t know that. They think they’re helping their children out, and they think they’re doing the right thing, but-
Joanna Leggett: 10:44 Well, the children in France would inherit it anyway, up to 100,000 per child, so if there was 200,000 and two children, they wouldn’t have to pay anything, they would inherit it naturally.
Lucia France: 10:53 Good to know anyway. All right, that’s all we’ve got time for, guys, for this half. Thank you very much, and we’ll be back very shortly after this break. Hello, and welcome back to Property Question Time. Joining me in the studio today we have Tony Gimple, Joanna Leggett, and Paul Mahoney. Thanks for joining us again, guys, and we’ll get straight in with the next question to you, Tony.
Lucia France: 11:22 Someone’s been very lucky here. “I’ve been lucky enough to receive a substantial windfall somewhere in the region of 1.5 million, and have for a long time wanted to build a property business that will provide work and income for my family long after I’ve gone. I’m happy to pay some tax, basic rate would be good, but have been told that my heirs will have to pay 40% inheritance tax when I do. Surely this can’t be right. I’ll be running this as a business, and thought that businesses don’t pay IHT. Am I wrong?” Now, please can you also clarify here, Tony, what IHT is as well?
Tony Gimple: 11:55 Inheritance tax.
Lucia France: 11:55 Right.
Tony Gimple: 11:58 It’s just the short hand for it. Inheritance tax, wow. State sponsored grave robbery. It’s horrible, horrible, horrible, deliberately penalizing the next generation for all your hard work. It’s nothing new, it’s been around for donkey’s years, since Roman times and before. Do businesses pay inheritance tax? Trading businesses do not, so Property TV, a corner shop, running a professional property business won’t pay inheritance tax.
Tony Gimple: 12:32 If however, your business is structured the wrong way, particularly when it comes to property, you will be deemed as if you’re running an investment business, particularly if you buy through a limited company, whereas the sole purpose is to collect rent for 12 months or more. It is an investment company.
Tony Gimple: 12:52 So outside all of your personal allowances, typically 650,000 for a married couple, rising to a million and 20, [inaudible 00:13:01], if they’re giving part of their main residence to direct descendants, every million pounds of equity will be subject to 400,000 pounds in inheritance tax.
Lucia France: 13:14 Wow, that’s a lot.
Tony Gimple: 13:17 If there’s a change of government lurching to the left, you can bet your bottom dollar, if there is still one left in the economy at that point, that tax will rise. So you’ll be really careful how they structure it.
Lucia France: 13:31 In this instance then, what advice could you give them in terms of it not being an investment business, and it being a trading business, or can they change that in terms of how it’s perceived?
Tony Gimple: 13:45 Yes, they can. It all comes back to some of the things we’ve covered in earlier programs about not being driven by tax, but for good business reasons. HMLC currently will treat income into limited liability partnerships as a trading income.
Lucia France: 14:06 Okay, so that would be your advice to this particular person who’s received that?
Tony Gimple: 14:10 I’d say so. Actually, my particular advice is if you just had a million and a half quid tax free windfall, go and have some fun.
Lucia France: 14:16 Yeah.
Paul Mahoney: 14:16 Just to comment on that, so far as how they’re actually going to invest the money as well. It’s important that they invest it in the right way, not just structure it in the right way. Structuring problem should come first, “What’s my strategy going to be? How am I going to structure it all? But then how actually am I going to invest that money?”
Paul Mahoney: 14:34 There’s various different ways you can invest 1.5 million pounds. Some not so great for what they’re looking to do, and obviously other ways that you can structure it that would work really well for what they’re looking to do so far as providing work and an income for their families.
Paul Mahoney: 14:48 So seeking advice on that, on how to structure it all, and not just going into a local estate agent and buying five properties on your own street. Going about it, as Tony said, as a business, and what makes the most sense to provide the goals that they’re working toward.
Lucia France: 15:03 So just certainly seek advice on that before they go ahead and spend any of that money.
Tony Gimple: 15:08 Yup.
Lucia France: 15:09 Great stuff, thank you very much, guys. Okay, moving onto Joanna now. Your next question, “I’m buying a property with friends.” Ooh. “I recently heard about something called SCI. Can anyone tell me what it is, please?”
Joanna Leggett: 15:21 Yes, an SCI is quite common if friends are buying together, or perhaps brothers and sisters, or family members. It means Société Civile Immobilière. It’s a non-trading company, but different people can have different shares in that property. What it means is if for example, two couples bought the property together, they’d all have 25% shares, and say for example as in our CEO is Katie, wanted to sell or buy his friends out, they could easily just buy the shares out, and the company just becomes in two people’s names, as opposed to four.
Joanna Leggett: 15:55 But I would definitely take legal advice is you were going to set this up, because in some instances, people have made the mistake as we said earlier, by putting their children in the SCI because they want them to inherit it, but they don’t need to because of the property, if it’s 100,000 per child, they don’t need to put it in an SCI, they will automatically get it tax free.
Joanna Leggett: 16:14 So it’s worth looking into. I would suggest that they take advice from an accountant or the notaire directly, and the notaire can help with the procedure of setting up the documents for an SCI as well.
Lucia France: 16:25 Okay. We’ve talked in previous programs, I know about buying properties with friends, and brothers and sisters, or you know, things like that. Do you advise against it as a general rule?
Joanna Leggett: 16:37 Not necessarily. I mean, you’d have to have a very good relationship, and have known your friends for a long time. It sometimes means, particularly if it’s a holiday home, you’re not going to be using it all year round, and it gives both couples the opportunity, it’s getting used more, they’re not paying rent on the property, there’s no income from the property, they’re not paying tax on any rental income because they’re sharing the cost as such.
Joanna Leggett: 16:58 There’s lots of benefits, but of course, if you do fall out, that is an issue all over really. Yeah, we don’t really have a view, and a lot of people do do it in France.
Lucia France: 17:08 Do they?
Joanna Leggett: 17:08 Yeah, there’s quite a lot of SCI set up, and then you can easily buy people out if they want to move on, or other people can buy in and buy the shares in, so perhaps another brother might buy them off another brother and become part of that shareholding.
Joanna Leggett: 17:22 And you can have one or more properties in an SCI, it’s not just for one property. You could hold other properties in the SCI as well.
Tony Gimple: 17:31 One thing to be careful of is if you are buying property outside of the UK, you need to have a will and power of attorney in that jurisdiction. Any UK estate planning should be solely based for UK assets, because trying to get the French to agree to anything that comes from this side of the channel would … let alone agree and probate on a will, we are two radically different legal systems, it would be exceptionally difficult.
Joanna Leggett: 17:56 Yeah, they have actually changed the system slightly in the respect that you can respect English law, so if you wanted to leave the property to the Donkey’s Home, you can do, but don’t be mistaken that because before you couldn’t.
Joanna Leggett: 18:07 I had to go to your children, you couldn’t disinherit your children, but now you can leave it to the Donkey’s Home, but you’ve got to remember that it doesn’t matter who you’re leaving it to, you’re still subject to French tax. That could be 65% for the Donkey Home to pay, whereas if it was to your children, they wouldn’t have that amount.
Tony Gimple: 18:23 And there’s a difference between can and will.
Joanna Leggett: 18:26 Yes, yeah.
Lucia France: 18:28 Very lucky donkeys.
Joanna Leggett: 18:29 Yeah. It’s a very good point. It’s very important if you do buy a property abroad to make a will with a notaire in our sense in France. When you buy a property, set up and make a will of how you want that property to be left on death.
Lucia France: 18:43 As ever, as we say so often with this show, just make sure you’ve got all of those things tied up before any problems arise. So yeah, thank you very much. Okay, moving to you, Paul. “Hello. I have three properties which I rent out. Currently, I’m overpaying on the interest only buy to let mortgage that I have had the longest, and I have the most equity in.” Excuse me.
Lucia France: 19:07 “My third and latest property is the smallest in value, and subsequently, I have less equity in it, but it has the smallest mortgage against it as it is a two bedroom end of terrace. I was thinking about stopping my overpayment and start overpaying on the third smallest property, as stated in the previous paragraph. My thoughts are that I would be mortgage fee on one of my properties, and be able to start overpaying on the next property with the lowest mortgage. What’s your advice, please?”
Paul Mahoney: 19:35 Okay.
Lucia France: 19:35 Complicated question there, but …
Paul Mahoney: 19:37 Yeah, well I get the logic so far as trying to get one property debt free, but I think it’s probably more of a mental relief thing as opposed to something that makes sense financially. I would say look at all three, and determine which one you’re paying the highest interest rate on, and pay that one off. Because you want to … they said they’ve got three, and it seems like they potentially live in one by the sounds of it.
Lucia France: 20:04 Yes, I think so.
Paul Mahoney: 20:06 And then two are buy to lets.
Lucia France: 20:08 Yeah.
Paul Mahoney: 20:10 Depending on the scenario, generally buy to let mortgages in some respect are tax deductible, whereas your home loan wouldn’t be, but in some cases, maybe the interest rate on the home loan might be less than the interest rate on the buy to lets.
Paul Mahoney: 20:24 So it would be about working out inclusive of tax savings or cost, what financially year on year would be best to get rid of, and directing their overpayments towards that mortgage, and then working through them sequentially in that order, if that makes sense.
Lucia France: 20:44 Yeah, so it’s more about not looking at which is the lowest mortgage in terms of money owed, it’s more about how the interest [crosstalk 00:20:51]-
Paul Mahoney: 20:50 Let’s say they’ve got two 100,000 pound mortgages, they owe 300 grand. Sorry, three 100,000 pound mortgages, they owe 300 grand. That’s what they owe. One might be on 2% interest rate, one might be on 3, one might be on 4. Obviously very simply, you would want to get rid of the one that you’re paying 4% on, but then you need to take into account the tax considerations as well.
Paul Mahoney: 21:11 So probably speak with either your accountant, financial advisor, mortgage broker. Work out how you can save yourself the most using that extra money that they have available.
Lucia France: 21:21 In terms of these buy to let mortgages, would you say that that would be … if they were thinking of buying any more property to keep that kind of system going, or would you recommend a different type of mortgage?
Paul Mahoney: 21:31 So far as the extra payments?
Lucia France: 21:33 Yes.
Paul Mahoney: 21:34 Yeah, so quite often we come across people who are saving money to invest whilst they’ve still got mortgages, and they’re putting their money into a bank account getting half a percent interest on it, but they’re paying 4% on their mortgages. You can pay extra off your mortgages and then re-mortgage that property to pull equity out to invest.
Paul Mahoney: 21:53 By putting your money into your mortgages, that’s not necessarily a bad thing. It’s not locked up forever. You could always re-mortgage to get that out at some point in the future if you wanted to continue to build.
Lucia France: 22:03 Great. Okay, thank you so much, Paul. That’s all we’ve got time for for today, so thank you to all our guests, Paul Mahoney, Joanna Leggett, and Tony Gimple. Thank you at home for watching. If you’ve got any questions you’d like to send in and get answered for yourselves, go to the website property-tv.co.uk, or you can email us email@example.com. We’ll see you again next time. Thanks for watching. `