Property TV Property Question Time S1 Ep14 - MD Paul Mahoney - Nova

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Property TV Property Question Time S1 Ep14 – MD Paul Mahoney

Jo Price: Hello there and welcome to Property Question Time. My name’s Jo Price, and on this show, we like to take your questions and throw them at a panel of property experts. That’s what we’re doing today. We’ve got loads of different questions all to do with finance, property, leasehold, freehold, you name it. We’ve got them.
Joining me today are three panelists, three guests who’ve been with us before. Welcome back. Firstly we’ve got Mary-Anne Bowring, welcome, Founding Director of the Ringley Group. Moving just to your left is the lovely Paul Mahoney. He is MD of Nova Financial. Last but not least, welcome back to Tony Gimple who’s Founding Director of Less Tax for Landlords. Welcome.
We’ve got lots of lovely questions for you today. First of all, I’m gonna kick off with you Mary-Anne. It’s quite a long question, so I am gonna put my specs on for this. I need a little bit of assistance.
“I own and live in a block of 36 flats that are all leasehold with a share of freehold. We have a management company that manages the building on behalf of all of us and is responsible for the building including maintenance and insurance.
Now unfortunately, there’s water leaking into my downstairs neighbor’s flat, and at the moment no one can find the source of the leak. But the management company is saying that if this water is found to be coming from a pipe that serves only my flat, then it’s my problem, and I’ll have to pay for it.
Since the pipe may well be in the cavity between me and my next door neighbor, they’re talking about having to rip out my kitchen …” That would be awful, wouldn’t it? ” … to get to it. As the owner of a leasehold flat that I only have contents insurance for, the building’s insurance is taken care of by the management company.
But what they’re saying is that the terms of the lease, which were written way back in 1927, very specifically make the pipes that serve my flat, my problem. And therefore, this problem is not covered by the communal building’s insurance nor is it covered by the contents insurance since pipes and kitchens are not contents. What do I do?”
It’s a tricky one this one. Isn’t it?
Mary-Anne: Well firstly, don’t be upset because you’ve got a 1927 lease because even a modern lease would make the pipes that exclusively serve your flat, your problem. However, you’re being slightly misled because the building’s insurance should and will cover trace and access.
So whilst it’s true that if your pipe has a problem, you have to replace your pipe, that might be perhaps 200 pounds of the total expense of remedying the problem. But taking your kitchen out, getting access, finding the leaking pipe is actually a building’s insurance item.
Jo Price: Okay, so that will fall to this person’s management company, rather than her own.
Mary-Anne: Yeah. So if the total cost of doing the whole job was let’s say, 4,000 pounds, and the cost of repairing the physical pipe that had a fault was 200 pounds, the building’s insurance should cover the larger part of that sum less any access on the policy, and you would cover the cost of the pipe repair.
Jo Price: Okay, for the initial investigation though Mary-Anne, who would finance that?
Mary-Anne: The building’s insurance should have trace and access on the policy.
Jo Price: Okay.
Mary-Anne: So the first thing to do is get a copy of the policy, read the words, ring up the insurer, and say that you need help with trace and access. And there is even specialist equipment that can trace pipe leaks by sonar.
Jo Price: Oh that’s good to know, so no walls being knocked into first.
Mary-Anne: Well it depends how deeply the pipe is, and what the pipe is. Lead pipes can often be embedded in the wall themselves. In a more modern building, there should be riser cupboards somewhere. It’s about tracing the pipe run, but a qualified plumber should be able to you with that.
Jo Price: Yeah, they don’t actually say how old the property is. So should this person go back to the management company and …
Mary-Anne: Yeah, I mean the next thing to do is to tell the management company that you think they’re mistaken, and that you think that a good building’s insurance policy should cover trace and access. In the unlikely event their policy doesn’t, then in theory, you’d be looking to them for an inadequate building’s insurance policy.
Jo Price: Okay.
Mary-Anne: But I think that’s highly unlikely, and you just need to get that policy, read it properly, and get your claim started.
Jo Price: In that particular case, for example, if it’s rare, would they need legal advice? Would they need to consult a solicitor?
Mary-Anne: Possibly because if the freehold company hasn’t put adequate insurance in place then that would be some sort of claim against the freehold company. But I doubt that eventuality will be the problem. I think the problem is perhaps an unprofessionally represented freehold company not really knowing whose liability’s what, and what the insurance covers. I think the first thing to do is get that policy, read it, use the words trace and access, and start demanding it from the building’s insurance cost.
Jo Price: Great advice. Thank you. Just a quick one though. Any contents that have perhaps been damaged by the dam or by the water. Who’s responsible for that?
Mary-Anne: Your contents insurance is for your contents, and the only sort of normal grey area is a wood floor that’s fixed or tiles that are fixed and normally part of the building’s insurance. Whereas a carpet would be part of the contents and of course, if it’s damaged or made mouldy, and if your, I don’t know, plates, cooking books etc., then those would-be contents.
Jo Price: Yeah because once water gets in, it’s really damaging. Isn’t it? Yeah, I’ve had a leak in the flat before, and it was not pleasant. And that was from a brand new washing machine. It went into the downstairs flat, really awful.
Tony, I could see you nodding there. Anything to add to that?
Tony: Yeah, I originally trained as a loss adjuster. These sorts of things are very common. Very few people truly understand what covers they have. They should always take advice, be it landlords, leaseholders, when you’re buying insurance, try and read the small detail. Take advice. And if you’re not getting anywhere, maybe go and talk to a loss assessor, who will act on your behalf. Albeit there will be professional fees.
Jo Price: Okay. So read the small print, always. Thank you very much. Paul over to you, so your first question is, “My wife and I would like to help our daughter get a foot on the property ladder.” Now this is happening quite a lot nowadays. It’s very difficult. Isn’t it? To get that foot on the first rung of the ladder.
“We have a large house with a small mortgage soon to be paid off, and we’ll have a very good pension in eight years’ time.” They will be taking early retirement, “or even larger on that pension part in 17 years’ time. If we re-mortgage our house and gift our daughter that money, she will be able to afford a two-bed flat. How is it best to gift the deposit so she can get a mortgage, and is there a way to create a second charge to help protect our substantial deposit while still meaning she can get that mortgage?”
Paul: Okay, yes. So there are a range of options, I’ll answer the mortgage part of the question. I think Tony’s probably in the best position to answer the gifting part. There’s a range of different products available in the market today to encourage first-time buyers to get into the market and to help that. And a part of that is gifting from family members.
For example, there’s a product in the market today where family members can actually put money into a deposit account. So the money doesn’t actually go toward the property. It is used as security, and that enables the daughter to buy the home. And other ways is the family members could become part owners of the property. There are stamp duty considerations to be had there because that would be considered a second property.
There’s not really a one-size fits all solution for that situation, but I suppose the key is to seek advice because based upon their more broad financial position, there will be a right option for them. It’s just about assessing those options and making a decision based upon that information.
Jo Price: Okay. So, if they were to become joint owners, so parents and daughter together, and maybe in 10 years’ time, they wanted to come off that mortgage. How would that work financially?
Paul: If they became joint owners, the main concern that I’d raise there would be that the stamp duty premium would apply.
Jo Price: Okay.
Paul: Because they already own their own home, in buying that second home, although the daughter’s a first-time buyer, they’re not. Therefore, they would pay an extra 3% stamp duty, so depending on the price of that property. That could be a fair bit of money.
Aside from that though, I suppose what to consider there is time frames. So far as what their daughter wants to do, and what they want to do, that may not align. They’re nearly retired. Their daughter’s young and buying their first property. So it’s important even when buying with family members that you make sure that, I suppose, when it comes to finances, that your goals are relatively aligned, if you’re going to be combining finances.
But if they are, then great. And down the line, the daughter could always buy out their share. Again, there’d probably be stamp duty and potentially capital gains tax considerations to be had there. Again, it’s more complex than a “this is the right thing for you” answer. But the key would be to seek advice for their personal situation.
Jo Price: Yeah, I’d imagine each individual case is quite personal and individual, isn’t it. But it’s happening a lot nowadays, so I’m sure we’ll have more questions on that in future shows.
Tony coming to you now with your first question. “I currently have two buy-to-lets under my belt, and given the recent tax changes due to affect the buy-to-let investors, I wanted to know if I’m better off keeping these under my own name or transferring, meaning selling them to a limited company that I would then have to create. All in an attempt to save on the tax bill. Also worth considering that I plan on increasing my portfolio over the coming years.”
Quite an interesting question this one.
Tony: It is, and a very common one. It’s not just for people who are buying their second, but it’s for buying their 200th. A lot of people are facing the same problems. Don’t let the tax towel wet the planning dog.
Jo Price: Okay.
Tony: It’s not about the tax. This is about how am I going to run this business and make money. Should I put them into a limited company? Pretty much the answer is no unless that is, you have no need for income and don’t give a stuff about inheritance tax. Limited companies are one of the most inefficient ways to own investment property.
Jo Price: Okay, really?
Tony: Yeah, by quite a margin. There are up to seven levels of taxation with a limited company, and you can end up paying vastly more than you would keeping it in your own name and suffering under Gorgeous George’s Section 24 changes.
Jo Price: Okay.
Tony: So if you had a straight choice, if there were no options between my name or a limited company, even though I was paying 45% tax, do it in your own name.
Jo Price: Sounds pretty complicated if you were to set up that limited company as well. Sounds like you’d need lots of advice.
Tony: Too many people do it without taking advice, but yeah, you’ve got issues with shareholder agreements. What happens if a shareholder dies? How do I take money out? Inheritance tax, capital gains tax, and getting all of the joined up bits of advice, the legal, the accountancy, the business planning is not at all easy.
Jo Price: Okay. Anything to add on that Paul?
Paul: Yeah, I suppose that there was a key point to what Tony started off with there, is it depends on what you wanted out of the investment. You know? If it’s a long-term strategy, and you’re not necessarily interested in the income, there’s not just the income. There’s other structures to consider as well. It’s not just your own name or a limited company. There’s a range of things to consider on how you should tax effectively structure a property or a property portfolio.
I do agree with Tony though. So far as moving properties in, I don’t think I’ve seen a situation where it’s really made sense. But so far as purchasing further, again something that’s certainly worth seeking advice on.
Jo Price: Okay great. Thank you very much. Before we go to a break, we always throw a little question on a golden nugget, a wise piece of advice, and our first victim is Paul here. So Paul, what would you like to add before we go to break?
Paul: My golden nugget would be, when you’re selecting a location and a property within a location, where I see some people go wrong is selecting a good location, but selecting the wrong property in that location. So, it’s very important to assess the demand in an area, but then also make sure that demand is skewed in your favour.
For example, if you’re investing in a location that has very high single occupancy rates, then a one-bedroom apartment is probably the best purchase. If you’re investing in a family-oriented area, then a three-bedroom house may be the best purchase. But in that family-oriented area, buying a one-bedroom apartment just because it’s cheaper or just because that’s a good area, isn’t going to be a very good idea if nobody wants to live in one-bedroom apartments.
Jo Price: Of course.
Paul: So making sure you understand, not just there is demand, but where that demand is skewed.
Jo Price: Okay great sage words there. We’ll be back in just a moment with more questions from our expert panel. Including questions on capital gains tax, and somebody who wants to invest in another property here in the U.K. and where the demand is right now here in the U.K. We’ll be back in just a moment.
Hello there and a warm welcome back to Property Question Time, the show where we pose your questions to our panel of property experts. Joining me today is Mary-Anne Bowring, Tony Gimple, and we do have Paul Mahoney.
First of all, we’ve got our golden nugget from the lovely Tony. Tony, wow us with your sage wisdom.
[00:14:24]

Tony:

It was better when I was anonymous I see. Famous and clearly has its issues. Golden nugget. Start where you want to finish.
Jo Price: Oh okay.
Tony: We’re doing things for tomorrow. Yes we need to live today, but when it comes to being a landlord in particular, you’re building for a tomorrow, retirement, inheritance. But that’s where you need to start. Then understand where you are today, and then just reverse engineer it, and you stand a much greater chance of achieving your goals and in a shorter time than if it’s the proverbial finger in the air, and I’m just doing it because I can.
Jo Price: Okay. Great. Wise words. So have that goal in mind, but think of all the practicalities and bring yourself back to the starting point.
Tony: Yeah.
Jo Price: Lovely. Okay great. Thank you. First question then to Mary-Anne now. “We have found a five to six year-old new build that we rather like and would be keen to purchase, but are wondering what advice we can be given about its future value before buying it. Will the value of the house increase when we decide to sell it?”
Sounds like a simple question, but it … Are you clairvoyant?
Mary-Anne: Well a crystal ball would certainly help answer that question because of course the future value is based on the market, and the market is made by demand. I think there are some supply issues that could be considered.
For example if your new build site is part of a much, much larger new build site, and there is more building continuing next door. Then your new build has already perhaps lost its initial virgin new-build premium and will be slightly less attractive than the ones that are still being developed next door with a new-build premium.
So I’d look at the supply site because that will also drive price. And really look at the nature of the area. Is it houses? Is it flats? Is it changing? Is gentrification spilling over into the area, which would then increase the value. How near are you to transport communications community facilities? What’s the poll factors that will let this area stand the test of time?
It’s a very difficult question without knowing where in the country you are. Because in London it’s a very crowded place. It’s easier to map differentials in values in London, than it would be perhaps in a village or Oxfordshire suburb because then it’s very specific to the area.
Valuers will also always value the price today looking at evidence perhaps three months before today, and prices are therefore set in lead by estate agents asking what they think they can get and the strength of demand at that time.
Jo Price: Okay.
Mary-Anne: So no, I can’t predict demand in the future because that’ll be based on inflation, wages, price growth and all sorts of other things. But I can say that you could do quite a bit of research to find out if you think the area will stand the test of time.
Jo Price: Okay.
Tony: It’s also the wrong question. It’s not how much it’s going to be worth. It’s how much income is it going to yield for me between now and then? The value is meaningless until you come to sell it. Meanwhile, if you can get a turn on your money that you’ve invested, pay the cost, pay the mortgage, make a profit, however much, a much sounder strategy because you can make as much as the income as you might in the capital growth over an even period of time.
Jo Price: Yeah. Thank you both, really comprehensive answer there. Coming to you now Paul with your question. “I’m looking to invest into another property for renting out in the U.K. Where is there a good demand right now?”
Paul: That’s a very broad question if we’re looking at the whole of the U.K. I can only speak from, I suppose, our experience, our research, where we have our clients investing at the moment. We’ve had a particular focus on the northwest, specifically Manchester and Liverpool.
Jo Price: My home area. Okay. The Wirral?
Paul: Yeah, yeah, the Wirral. I suppose we used to do a lot in London. London’s become expensive, yields are low. With changes with regards to tax and finance, it’s very difficult to justify a buy-to-let investment in the southeast in our opinion. Looking toward the northwest though, where prices are a lot more affordable, yields are a lot higher.
But also, the key fundamentals of property investment are very much present. Everything’s moving in the right direction so far as job growth, population growth, socioeconomic levels. In the right areas, there is a lack of supply, and there’s a significant strong growing demand.
So to answer that question, I would say look to the northwest. But before buying, seek advice.
Jo Price: Okay, well my sister certainly knows. She has three investment properties in the northwest. Do you think … I know it’s only a certain area of property investment and buy-to-let, but they are all university cities as well. There’s a massive student population in Liverpool, and Manchester has two different universities. Do you think that has an impact as well?
Paul: It does have an impact, but I suppose you also need to consider who your target market is. Student properties can be a good investment. Purpose built student properties generally are solely yield focused. And they’re generally a cash purchase. That works for a certain type of investor, somebody that’s trying to achieve a certain thing.
But in my opinion, the main differentiating factor of property investment, what makes it so good, is the ability for leverage at low interest rates, high loaned values over the long term.
Therefore, you’re applying a relatively small amount of money, but getting your returns on the total value. So generally, we tend to focus on young professionals in central locations, good quality properties in good areas where you know the demand’s going to be very sustainable regardless of the state of the economy. And of course, yield is good. Income is good, but where you really make your money is in the growth of the longer term.
Jo Price: Being from that area, I’ve definitely seen … I haven’t lived there for over 20 years, but definitely seen a massive increase in the amount of money that is around, and the amount of properties that are selling and quick turnover, just the prices really. You know, years ago you could buy a few properties in one street. Now it’s certainly not the case.
Paul: Yeah, we’ve had some clients do extremely well, especially in Manchester, over the past few years.
Jo Price: Yeah, indeed. Thank you very much. Okay Tony, onto you. A little bit of a tax question now. “When I have paid capital gains tax on the gain on a property, do I also have to pay income tax on the final amount I’m left with. Once I’ve paid off the mortgage does this take me into a higher tax bracket for the year?” So a few sort of questions around one question there. Did you get all of that?
Tony: Yeah.
Jo Price: Okay, good.
Tony: Yeah. Nothing like a compound question.
Jo Price: Exactly.
Tony: Okay, CGT is totally separate from income tax. You’ll pay CGT, that’s it. You won’t pay income tax on that same amount, unless of course, you reinvest that and the reinvested amount produces an income, then income tax would be payable.
Jo Price: Okay. I see. So that’s the simple answer.
Tony: That’s the simple answer. Profession simple answer.
Jo Price: Okay, and is it best to get particular advice one top property, regarding that, and then look at another way of doing it on another property. Or if you have a portfolio, everything applies or …
Tony: Why are you selling the property? That’s the question. It’s not how much tax I’m going to pay. Why would you even want to pay tax in the first place? You need to make the business case. If you’ve got an underperformed property, depreciation, no real prospects for the future, it may be worthwhile taking a bit of a tax hit in order to free up the capital, where you can get a greater return, northeast, northwest, whatever. But it’s the business case comes first. Why do I have this property in my portfolio? Is it making me money?
Jo Price: Okay, I could see you nodding there Paul. Anything to add to that?
Paul: I agree. Selling property should always be the last resort really because re-mortgaging property to release equities is really tax-free money. If the price of your property doubles from 200 to 400 thousand, you can essentially take out that extra 200,000 through re-mortgaging and reinvest it.
But Tony’s right, you know, if it’s underperforming. If the equity in that property could be better used elsewhere, which I suppose is the question we always ask our clients when they’re asking should they be selling. Is that hundred thousand, for example, you’ve got there, if you had that in your bank account, would you buy that property?
Jo Price: Okay.
Paul: If the answer’s no, then you shouldn’t have that property. If the answer’s yes, then obviously hold onto it.
Jo Price: Great advice. I mean we all go through different times in our lives where we want money quite quickly, maybe illness, sickness, family, helping family, that sort of thing. But really take advice on that because there are perhaps are other ways of doing it rather than selling.
Tony: Yeah, but if you have to sell it because you really need the money, sell it, take the tax hit, get on with your life. Next.
Jo Price: Yeah, very good advice. And rounding off this half of the show we come to our lovely golden nugget from Mary-Anne, so what would you like to add to that?
Mary-Anne: Well I’ve been asked to sort of follow up on the tax side, so with my valuers head on, we do a lot of valuations of both inheritance tax planning and capital gains tax planning. Also, valuations which will diminish the price. One way of doing that is a lifetime gift, so if you gift your property to perhaps who might inherit it in the future, that will decrease your tax burden.
For capital gains tax valuation, we’ve actually got to look at when you acquired the property because if it was a long time ago, pre-65 or pre-82, the in land revenue lets you substitute in 1982 or ’65 as your starting price. So we have records going all the way back that far-
Jo Price: Wow, okay.
Mary-Anne: To work out how much the value has increased in that period. We’ll then be looking for capital expenditure to factor that into the valuation and looking at whether the property is at the same par in terms of facilities as other properties today. There are quite a few different factors to take into account.
Capital gains tax valuation isn’t just what does the estate agent think it’s worth today. There are some clever valuation methods to reduce the burden. Another one is whether the property’s owned in joint names because if the property is owned in joint names, then it’s deemed to be undivided shares. And there is a valuation end allowance to again, decrease the valuation because it’s held in joint names.
Jo Price: Oh I see.
Mary-Anne: So again, there’s a lot of … You need specialist advice.
Jo Price: That’s exactly what I was just about to say because already, I’m thinking I wouldn’t know who to ask. But I think financial advice, if you have an accountant, speak to your accountant. Go through all the options, really. It sounds like-
Jo Price: It’s kind of a minefield isn’t it?
Mary-Anne: Ask the valuer, who’s doing it for you, if they actually understand about undivided shares, inheritance tax, substituting values, indexation because the valuer and the accountant will be working very, very closely together.
Jo Price: Okay.
Tony: And the same for the accountant because not all accountants understand CGT and inheritance tax when it comes to property.
Jo Price: Of course.
Tony: It’s a pretty specialist field.
Jo Price: Yeah, I mean I find that with my own accountant. You know, he wasn’t ever dealing with anyone who was in the media or a journalist or presenter or anything, so I’ve had to almost teach him certain things. But yeah.
Tony: Why they are paying you in the first place.
Jo Price: Exactly, exactly. But that is crucial really. Isn’t it?

Mary-Anne: There’s just two rules to follow. On a property keep receipts of all your capital expenditure. And on inheritance, gift everything as fast as you can before … Well you’ve got a seven-year period. So when you decide exactly when you’re gonna die, work back seven years and gift it on that day.
Jo Price: I know, my parents have already done that a few years ago. I know, I know. They did do that a few years ago. I mean my sister and I, we’re sort of, “No, don’t do that. It just makes us feel really morbid.” But I’m glad they have done it, because I don’t want them to lose out on more tax than they’ve paid in their lifetime anyway.
Tony: Yeah, but take advice before doing it. There are some nasty traps there if you’re not careful.
Jo Price: Thank you so much. Thank you all of you for joining us on the show again today. Thank you for watching. Don’t forget, if you have any question on anything to do related to property, all you have to do is email us here at Property TV. The email address is infor@property-tv.co.uk, or you can of course, go to our website. Or catch up on our Property TV app. You can download that as well. Thank you so much for joining us, and look forward to seeing you soon. Bye-bye.

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