GETTING YOUR HOUSE IN ORDER

TAX PLANNING AND INVESTING IN PROPERTY IN

THE NEW FINANCIAL YEAR

Presented by

Sarah Hill

Michael Culver

Sarah Clacker

Today’s Topics Things to consider when buying or selling an

investment property

Letting your investment property

How you own your property – are everyone’s interests fully protected?

Taxation & Estate Planning – Inheritance Tax, Domicile, Wills

The BasicsWHY?

Why are you investing?

Capital Growth vs Rental Yield (Net Rent / Property Cost)

Annual Outgoings e.g. Insurance, Maintenance, Service Charges, Void Periods

Purchase Considerations

Points to think about when searching for property:

Where is the property located?

Is there a ready supply of the ‘right’ tenants?

What is the rental market like in that area?

Buy to Let Mortgages

Legal Points Does the lease prohibit letting or are there fees

payable?

‘Single Private Residence’

Renting rooms – House of Multiple Occupation

Selling Your Property Capital Gains Tax

Selling with the tenants still at the property

Getting your tenants out...

Managed or Self-Managed?

Different levels of letting arrangements

Percentage of the monthly rent taken

Who maintains the property?

Dealing with the ‘admin’

Tenancy Agreements & Rental Terms

Assured Shorthold Tenancy – the most common type of tenancy agreement

Tenancy Deposit Schemes

Landlord’s Gas Safety Certificate

Break Clauses & Grounds for Possession

Taxation

Income Tax

Declaration of Trust to share the burden

HOW TOPROTECT THEPROPERTYYOU’VEBOUGHT

You’ve just moved in

Initial considerations Insurance

Buildings Contents Life

Locks Will

Do I really need a Will?When purchasing a property it is always wise to think about making or revising your Will.

Why... You decide how your estate should be divided and who should handle

your affairs. Not just for elderly people – very important for younger people and

especially young families and homeowners. If not married/in a civil partnership, you can protect your partner. Can protect your children by appointing guardians for your children,

specifying the age they inherit and appointing Trustees to look after the money.

If you already have a Will, when did you last update it? New property?

What happens if I don’t have a Will?

Survived by partner

Gets nothing!!

Survived by Spouse/Civil

Partner and no children

Estate £450,000 +

Y N

If parents/siblingsliving

Spouse – personal poss and first

£450k + ½ residueParents/siblings – ½ residue equally

Everything to Spouse/Civil

partner

No spouse, civil partner, or

children

Parents

Siblings whole blood/

half blood

Grandparents

Aunts/uncles whole blood or their issue

Aunts/uncles half blood or their issue

CROWN

Survived by Spouse/Civil Partner and

children

Estate £250,000 +

Everything to Spouse/Civil

partner

Spouse – chattels, first £250k and life interest in

½ residueChildren – ½ residue

when reach 18 and other half when spouse dies

Y N

How you own you property and your Will

In relation to your property if you don’t have a Will the following rules apply:

If you buy as tenants-in-common the deceased’s share is part of their own estate not automatically pass to the surviving owner. disputes

If you buy as joint tenants the deceased’s share will automatically pass to the survivor. later marriage / new family Mortgage problems if one dies (who pays) – consider life cover

Declarations of Trust

Property ownership agreement Sets out:

Beneficial ownership which may differ from legal ownership – percentages

Return of initial deposits Can cover buying each other out Often used where parents contribute money to assist

children to purchase Contribution to bills, mortgage payments etc

Your Property – The Tax consequences

Inheritance Tax – the basics• Primarily a tax on death but:

• Lifetime gifts• PETS

• How is inheritance charged on an estate on death?• Nil rate band (NRB) £325,000 fixed until at least 2015• Anything over and above – 40% tax

• Transferable NRB• Worked out as a percentage of ‘unused’ NRB

• Charitable giving – reduced rate of IHT – 36%

• Other reliefs• BPR• APR

Capital Gains Tax – the basics

When sell or ‘dispose’ of an asset, CGT may be payable• Dispose means

• sell• give it away • transfer it to someone else • exchange it for something else • receive compensation for it - for example you receive an insurance

payout when an asset has been destroyed • Annual allowance £10,900 (increase to £11,000 April 2014)• Taxed at 18% or 28% depending on your income tax rate• Last 18 months of ownership are exempt• Transfer a share to someone to make use of x2 allowances

Funding your Purchase – Tax considerations

How will you fund the purchase?

Gift from family? – can help parents with inheritance tax planning - PETs?

Cash buyer Mortgage – tax deductable so may be preferable than cash

purchase Life cover – written in trust

Tax Planning cont... Your home:

Income Tax None unless rent out room

Inheritance tax Value of home at open market value at date of death Be careful of GROB

Capital Gains Tax Private residence relief – election if have more than one home – 2 years

Investment Property:Income Tax

Rental Income – use lowest rate income tax band Interest on mortgages are tax deductible – repayments are not Deduct all expenses

Inheritance Tax Relief □ Rental Income – gift of surplus income

Capital Gains Tax Deduct costs Annual allowance £10,900 per owner Carry forward losses from previous years

Mitigating Inheritance tax What can you do?

Gifting and spending Small gifts Annual exemption Wedding/ civil partnership gifts

Life assurance policies, pensions, death in service benefits Usually nominated to spouse - aggregate to their estate Think about Pilot settlements

Regular gifts from income Good records to be kept Submitted to the Revenue

Inheritance from parents – do you need it? Post death variations

Financial products AIM shares etc – Take financial advice

I’m buying a property in the UK but I’m not domiciled here, what

are the issues?

Succession and inheritance tax in the UK is based on Domicile rather than residency.

Domicile is a complex area and has implications for inheritance tax and succession of assets.

Cont...

If you own property or land (‘immovable property’) in the UK and don’t have a Will, it will pass by the UK Intestacy rules whereas your other assets (‘movable property’) such as bank accounts and shares will pass by the succession rules of your country of domicile.

Important to get advice on this area and get concurrent Wills in

both countries.

Lasting Powers of Attorney Two types – Property and Financial Affairs and Health and

Welfare

Property and Financial Affairs Running bank accounts Overseas Running your business Managing your property

Health and Welfare Can only be used on onset of incapacity Where you will live What you will wear Life sustaining treatment Next of kin

Bolt Burdon Solicitors Please contact us with enquiries:

Sarah Hill - ConveyancingE: sarahhill@boltburdon.co.uk T: 020 7288 4712

Michael Culver – Tax planningE: michaelculver@boltburdon.co.uk T: 020 7288 4741

Sarah Clacker – Tax planningE: sarahclacker@boltburdon.co.uk T: 020 7288 4747