Shona Lindsay: Hello, and welcome to Property Question Time. I’m Shona Lindsay, and I’m joined today by three experts here in the studio. First of all, let me introduce you to Stephen Galpin, a property consultant, to John Howard who is a property developer, and an author, and to Paul Mahoney, who is the managing director of Nova Finance Group. Hi Gentlemen. Let’s crack straight on with these questions. The first question for you, Stephen, if I may, “I started looking at an apartment in London’s Docklands two years ago. With the amount of new towers going up I thought the values would drop. Instead, it seems that prices are still rising, and I’ve missed the boat. What’s likely to happen to the prices in Docklands with all these new towers and when they’re finished?”
Stephen Galpin: Well, what a supper question. I wish I knew the answer. I’d be quite well off if I did. Look, go back 20 years to the inception of the Docklands development, and people two years after that were saying that they’d missed the boat, and probably should have bought earlier, but it’s been a progressive rise over this last 15 or 20 years until probably two years ago when things have gone a little bit flat, like they have across London in many areas for properties, especially when you get perhaps over 750,000. Now all the top agents are predicting a bounce in 2020 when the consequences of Brexit become clear. A lot of the properties down here in Docklands, I mean we’re in the Nova hotel here in Canary Wharf and I can think of one development two minutes from here that’s 1000 apartments in one building.
But nearly all sold, doing extremely well. A lot of overseas money and those overseas buyers will tend to keep the prices fairly stable.
I would say now is probably a good time to buy, I think over the next two years I think there will be a little bit of a bounce. In Canary Wharf here we’re still probably 50% behind some of the better areas in the West End of London. And I don’t believe that differentially sustainable. So either those properties in the West Down are gonna come down-
Shona Lindsay: Come down [crosstalk 00:02:30] gonna go up, yeah.
Stephen Galpin: Go up. And I think-
Paul Mahoney: Perhaps a bit of both.
Stephen Galpin: Probably. But I think the real possibility is that these will rise and I think 2020 will see the significant rises.
Shona Lindsay: So you still think that there is room for … To make money in this area of the London market?
Stephen Galpin: I do.
Shona Lindsay: And is there more room for more building in this area as well?
Stephen Galpin: There are some 20 odd thousand apartments approved for construction over the next three or four years in this area, it’s only ever done good for the area. It’s only ever increased prices. You tend to get over surplus of properties to rent or properties for sale. As I say, London’s a worldwide market and this in particular is I think pretty hot at the moment.
John Howard: Sold it to me.
Stephen Galpin: Okay.
Shona Lindsay: You gonna be investing?
Well on that note if I could ask you a question John that would be great-
John Howard: Please do.
Shona Lindsay: Someone has written in asking us to help them. And they’re looking to invest some money in property and they’re in the process of exploring all avenues with this occupation. They’ve been advised that if they were to employ a tradesman to do any work on a property, they need to get some sort of code off them and then call, they’ve put ‘I’m presuming the tax people’ and they tell me whether I need to deduct the money from their wages. Then they get some sort of voucher for the difference. The caller is saying that it sounds very, very complicated and is this what all property developers do? And also what is the best insurance for this kind of thing.
John Howard: Well the good news I know the answer.
Shona Lindsay: Excellent.
John Howard: So that’s good.
Shona Lindsay: Yes.
John Howard: So it’s a unique tax reference they require and you get that from HMCR. And basically if you’re buying or you’re building a house to live in yourself, you don’t need it.
Shona Lindsay: Right so this is only if it’s a development.
John Howard: Exactly, if you’re developing then you do need to speak to them and get the reference. They will then let you know whether or not you need to deduct the tax or not from the builder.
Shona Lindsay: Okay, and that’s based on what? Why might you have to deduct it from some person … Some people and not another?
John Howard: If the history of the building company is such that the revenue think it ought to be taxed at source.
Shona Lindsay: Right, okay. And then they were asking about insurance.
John Howard: Yeah I don’t quite know what they mean about the insurance. If they’re building a new house then you want to get a ten year warranty on it and these are very common now, they’re easy to get. If it’s just normal building insurance you know for the building then obviously just speak to the normal broker.
Shona Lindsay: Might there be some sort of employer’s liability insurance? Is that maybe what they’re talking about?
John Howard: Yes. Obviously you need that as well, I should’ve mentioned that, yeah. And a good broker will sort that out for you. No problem at all.
Shona Lindsay: Great. Thank you very much. Let’s move on now to Paul. I love the beginning of this question, it makes me chuckle a little bit, this person’s saying as a moderately successful landlord, I want to know what that means but anyway-
John Howard: So do I.
Shona Lindsay: I recently went to a seminar about becoming an expat. But whilst living in the sun sounds and not paying any tax, like a good idea, I’m worried that I might still be subject to UK tax. What would you advise?
Paul Mahoney: Okay, I think what they mean by that is they’re making some money and they want to mitigate tax. There’s been a bit of a trend or you know, some or a few relatively prominent landlords have done that and perhaps they’ve seen them doing that and thought, well can I do that? So far as moving to a tax haven and trying to pay less tax because of that.
It’s something that obviously the government, HMRC don’t like and they’ve cracked down on it quite a bit in that yes, you do still have to pay tax in the UK if that’s where your properties are. And that’s deducted automatically, it’s supposed to be deducted automatically by your agent just to avoid you not declaring it.
Something that’s come up in this show quite a bit on various questions with regards to tax is that you shouldn’t let the tax tail wag the investment dog. You know, that tax, you pay tax when you’re making money that’s a good thing. And you know you shouldn’t plan your whole life around mitigating tax. You should be planning to try and make a bit more money perhaps.
But you know, for that person I suppose it depends on their problem. I think some of the reasons people have been considering options like that is because of section 24 for example where they might have had a profitable portfolio and once that comes into full effect they may no longer have a profitable portfolio. There are other ways of dealing with that rather than running away to Malta.
Shona Lindsay: But they’re not talking about cashing in their portfolio here are they? Well they may be but they haven’t actually mentioned that.
Paul Mahoney: It seems what they’re talking about is moving to an area that’s taxed less than the UK to try to mitigate the tax they’re paying here. Whether they can actually do that or not, to be honest I don’t really know. But even if they can they’re changing their whole life based around paying a little bit less tax.
Shona Lindsay: Yes. Absolutely.
John Howard: I mean there’s a quality of life in all this as well isn’t there? You have to balance not seeing your family or whatever it might be, they might not want to see their family to be fair. If they do want to see their family-
Shona Lindsay: Then they might want to run away.
John Howard: You know, I mean living miles away is perhaps … Is it worth it, you know?
Shona Lindsay: Yeah. And then are you going to spend more coming back to visit them.
John Howard: Well exactly.
Shona Lindsay: So there’s pros and cons to that. I just wondered with this, if they are holding on to their portfolio they’ve obviously got to pay tax on that income because it’s being earned in the UK.
Paul Mahoney: They will regardless, I believe there are some strategies for perhaps paying a little bit less tax, as a higher rate tax payer or an extra rate tax payer if you’re living overseas there are ways of mitigating it. So perhaps yes, that might be an option for them but I would say it’s only one of … You have a range of options to help them make more money.
Because at the end of the day, you should be looking what you’re putting in your pocket after tax.
Shona Lindsay: Yes.
Paul Mahoney: As opposed to just how much tax am I paying?
Shona Lindsay: And obviously if they do want to have an easier life then that’s a completely different question isn’t it?
Paul Mahoney: Yeah.
Shona Lindsay: Okay, thank you very much. Thank you.
So that’s all we’ve got time for in this half of the show, so do join us after the break for more questions with our experts.
Hi and welcome back to property question time. I’m Shona Lindsay and I’m joined here in the studio by Stephen Galpin.
Stephen Galpin: Hi.
Shona Lindsay: John Howard.
John Howard: Hi.
Shona Lindsay: And Paul Mahoney.
Paul Mahoney: Hi.
Shona Lindsay: So next set of questions gentlemen, for you please Stephen. I’m going to inherit a house in the Brixton area shortly. I live in the country and I have no idea what it might be like to sell it as opposed to possibly keeping it and renting it out. A lot would depend on what the growth of the property market in that area might be like and I’d appreciate the views of a London property expert.
Stephen Galpin: Right, I’ll try. Again not an easy question because this comes down to people’s lifestyle if you’d like, what their priorities are. Now look, whenever you own a property that’s not within site, of course you’re trying to manage it by remote control. So as far as the letting and investment aspect of that is concerned, do you know a good letting agent? Can you find one? Can you feel comfortable with him? Because you’re going to be dealing by remote control.
I prefer to have properties and manage properties that are close to me, that I can see, that I can visit. So I think that’s quite an important consideration. You must also remember that no matter on how small a scale, property investment is a business, do you have a business mind? Do you have the kind of attitude and competence that can manage a small business?
I think that’s very important to remember-
Shona Lindsay: And it can be stressful as well.
Stephen Galpin: It can indeed be stressful. Now in terms of selling it, well again I would have to say I think why would you say, do I want to keep it? The question is are you able to keep the investment? Could you use the money more beneficially in your normal lifestyle? However if you do want to keep the investment ask yourself this, again do you know the kind of agent that could sell it for you or rent it for you successfully?
Can you trust them? Are you sure and happy with the advice that you’re given? Again selling a property is not always easy. If you’re not a local owner and you’re not easily accessible by the agency you tend to go to the back of the queue a little bit, just by normal business practice. I’m afraid it just happens.
So you’ve got to feel comfortable that the property is going to be saleable and you’ve got the right person to sell it for you. I would suggest that worrying about the particular growth in a particular area is a bit of a dangerous strategy.
I know nothing about stocks and shares, the last thing I would do is buy some shares, I think because I’m going to be ten minutes behind the game aren’t I? The professionals are going to have the legs on me. And I think the same thing applies to property. Unless you’re in a position that you can understand really comprehend the market, then I would sell it and invest a little bit closer to where you live.
Shona Lindsay: But I was just gonna say that, I mean doesn’t necessarily mean don’t get involved with buy to let but perhaps bring that money to an area where you’re much more familiar-
Stephen Galpin: Bring it closer to home where you can see it, you can control it and look after it. I think that’s my answer.
John Howard: Yeah makes sense. I think it’s a good answer.
Shona Lindsay: And also if it’s a house in Brixton and let’s presume if it’s an inheritance that there is no mortgage on it, that therefore that’s quite a lot of money tied up in one place isn’t it? Which could be diversified perhaps.
Stephen Galpin: It’s a huge amount of money. I mean Brixton has been a good growth area over the last ten years. Whether other parts of London are going to outstrip it in the next few I don’t know. You know, again it’s a case, if we knew the answers we’d all be very well off-
Shona Lindsay: We’d all be millionaires .[crosstalk 00:12:57] absolutely.
Stephen Galpin: I would just urge caution. And self examination to a little.
Paul Mahoney: If I could just add, slight little different take on that point about having properties close to home. A lot of people do invest quite far from home and quite successfully so I don’t think it’s necessarily … Although if you are starting out and you want to have a little bit more confidence and be able to see, touch and feel your property, that makes sense. You get the area but that doesn’t mean that you can’t become familiar and operate in areas that are hundreds of miles from home just as successfully.
Shona Lindsay: Especially if you can find someone potentially that you can trust locally as well who could be the person who goes round at very short notice. I think it’s about having a good team as well isn’t it? [crosstalk 00:13:46]
Stephen Galpin: I think also, I just think on this particular question you’re talking about somebody here who’s going to be, I think what the government would call an accidental landlord or an accidental investor.
John Howard: That’s true.
Shona Lindsay: Yes.
Stephen Galpin: And I think the criteria is slightly different for that type of person but I take your point, you know, we have a lot of people invest from all over the world in London and they do very well.
John Howard: And I think also, I mean I’d invest [inaudible 00:14:08] all over the country. But I would say, certainly for your first one or two, being local is a lot easier.
Shona Lindsay: So I now have a question for you if I may, John?
John Howard: Yes please.
Shona Lindsay: We have been approached by several developers, all of whom seem to be wiling, subject to planning permission, to pay substantially more than local estate agent valuations for our site. Has anyone else had any experience of this method of selling a house? If so, are there any pitfalls we should be aware of? If we decide to go ahead, how do we find a solicitor specializing in this type of property transaction?
John Howard: Okay, well this is becoming very common now because planning is getting easier and easier in certain areas.
Shona Lindsay: Right.
John Howard: So I’m not surprised they’ve been offered more than the agent says because at the end of the day, they’re buying it subject to planning permission which obviously means, if they don’t get the planning permission they want they won’t be purchasing the property.
Shona Lindsay: Right.
John Howard: Now, depending how big the piece of land is, are they being realistic about what they want to get on there? Is the developer being over ambitious? In which case it doesn’t matter what they offer, they’re never gonna buy it. So they need some advice and I would look at the offers they’re getting and decide which one of them seems the most sensible in terms of planning. So if someone’s going for three houses and the other one’s going for six you want to know why is the difference. And if you speak to the local planning authority, they’re very helpful and they will certainly guide you as to what will be acceptable or won’t be acceptable.
Shona Lindsay: In that particular area.
John Howard: In that particular area, yes.
Shona Lindsay: Could this be quite a drawn out process for them?
John Howard: Yes, I would’ve thought … If you’re selling subject to planning permission, when we buy like that we want at least 12 months to get planning.
Shona Lindsay: Right. It sounds as though they’ve potentially already had their house valued for a normal sale here which, okay, how long is a piece of string, but normally we’re sort of saying once you get an offer 12 to 16 weeks. But if yours, 12 months to four months is a massive difference.
John Howard: And also it probably has a term in the contract that says if they don’t get the permission they can-
Shona Lindsay: Then the sale is off completely.
John Howard: Well one the sale is off or they can go to appeal and appeal takes another six months at least.
Shona Lindsay: Oh wow.
John Howard: But 50% of appeals are upheld.
Shona Lindsay: Really?
John Howard: So depending-
Shona Lindsay: So again there’s still no guarantee.
John Howard: Still no guarantee but to be fair, 50% is not a bad risk if it’s a lot of money, extra money they’re getting. So you have to be patient.
Shona Lindsay: And it’s talking about the vendor here, the person who owns the property.
John Howard: Yes.
Shona Lindsay: They even though they wouldn’t be the ones applying for the planning permission, they can ask the planning department for that advise based on what these potential developers have.
John Howard: Absolutely. And they can also take the advice of a planning consultant as well if they wish, obviously. Personally I wouldn’t take the advice of an agent because they could be acting for one of the-
Shona Lindsay: Right, yes, could be.
John Howard: They could be acting for one of the potential buyers. So be wary.
Stephen Galpin: Most local authorities have what they call a duty planner on daily duty and they’re quite easy to approach, they’re very helpful and they will just give you a feel as to what the council are thinking.
John Howard: And it’s free.
Stephen Galpin: And it’s free, yes.
Shona Lindsay: You know, you talked about whether it’s six houses or three houses. And all of that’s gonna depend on parking and access-
John Howard: Absolutely.
Shona Lindsay: And all this sort of thing, so it’d be quite easy for a planner to say, that’s never gonna happen.
John Howard: There’s no way that’s gonna happen but you might get three or four, in which case … And also you need to investigate the people making the offer, because if they’ve got a good reputation of getting planning through the process then obviously even if they’re offering a little bit less than someone else you may want to go with the one who’s got a better track record.
Shona Lindsay: Yes, got a good relationship with that planning department.
John Howard: Absolutely. Very much so. Very good point, yeah.
Shona Lindsay: Great, thank you very much. So I have a question now for you Paul. I love this. We all want to know this person. I have been lucky enough to receive a substantial windfall, somewhere in the region of 1.5 million pounds 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 go. Surely this can’t be right? I’ll be running this as a business and I thought that businesses don’t pay inheritance tax. Am I wrong?
Paul Mahoney: Okay, so on the inheritance tax question, investment businesses do. Trading businesses don’t.
Shona Lindsay: Right.
Paul Mahoney: So that will be the difference, so far as I understand that is a slight gray area so far as what is a trading business and what is an investment business but obviously an investment business is something where you park money and invest and do nothing for it, to make that a trading business you need to be involved in that business and actually doing something for that business. And I believe there’s a sort of bench mark or a rule of thumb of sort of 15 hours a week that you’re actually working in the business-
John Howard: Also, potentially buying and selling helps that.
Paul Mahoney: Or buying and selling, you know, if you’re buying-
Shona Lindsay: So it’s active.
Paul Mahoney: Being active as opposed to just buying assets and letting them sit. I don’t believe it necessarily needs to be buying and selling, you could have a portfolio of 20 properties where you’re managing them and you’re renovating them and all that sort of thing.
Shona Lindsay: Yes.
Paul Mahoney: I believe that would also be considered a trading business.
Shona Lindsay: A trading business.
Paul Mahoney: But it needs to remain a trading business for there to be any sort of inheritance tax concession in place.
Shona Lindsay: So when this person dies and they’ve left the business to friends and family, the business needs to right up until that point be trading.
Paul Mahoney: I believe so yeah. They should definitely seek advice from a specialist in that area, it’s not necessarily my area of expertise but they should definitely seek advice on that. Because obviously it’s a big chunk of money and I assume they’re looking to turn that one and a half into whatever, X amount of money and by the time they expire-
Shona Lindsay: They talk about mitigating tax here having inherited 1.5 million or thereabouts and they’re happy to pay some tax. Basic rate would be good. I’m assuming the they’re talking long term- [crosstalk 00:20:33]
Paul Mahoney: Even short term, the trading business can be a way of mitigating the tax of a property portfolio, especially if the whole family’s involved. They could have the whole family on a 44,000 pound salary and be paying … Each of them would be paying 20% tax on that and they could also be remortgaging, reinvesting within the limited company structure which at the moment is 19% tax and it’s coming down to 17. So overall for that sort of purpose it is quite a tax effective vehicle for building and sustaining a portfolio.
So that could potentially work for them both in the short, medium and long term.
Shona Lindsay: Right, excellent, thank you very much.
Stephen Galpin: Can I just add to that-
Shona Lindsay: Oh yes, please.
Stephen Galpin: I just do feel Paul’s earlier point was absolutely right. Don’t run a business for the sake of effective tax. It often doesn’t work, concentrate your efforts on running your business and being successful and let your professionals worry about your tax for you. There’s so much easily accessed professional advice available these days it needn’t necessarily cost you a fortune.
Shona Lindsay: Cost a fortune. Well that’s all we’ve got time for on this edition of property question time, but as ever if you do have questions for any of our experts do please go to the website, WWW.propetytelevision.tv or send us a direct email to firstname.lastname@example.org. All that’s left is to say thank you to our lovely guests, to Stephen Galpin, to John Howard-
John Howard: Thank you.
Shona Lindsay: And to Paul Mahoney.
Paul Mahoney: Thank you.
Shona Lindsay: See you soon on the next addition of property question time, bye.