Buying and investing in the london property market

Buying and investing in the London
property market
Presented by
Sophie Shaladi
William Bethune
John Spence
Michael Culver
Darrell Webb

Today’s Topics
 Things to consider when buying or selling an investment
property
 Lease Extensions & Enfranchisement
 Tenancies & Problem Tenants
 Taxation & Estate Planning – Inheritance Tax, Domicile, Wills
 Marriage Agreements
 WE CANNOT GIVE FINANCIAL ADVICE OR ADVICE ON THE
PROPERTY MARKET.

Things to consider when buying or
selling an investment property
Sophie Shaladi
sophieshaladi@boltburon.co.uk
DD 0207 288 4798

The Basics
WHY?
 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’

Lease Extension and
Enfranchisement
William Bethune
williambethune@boltburdon.co.uk
DD 020 7288 4743

Freehold and Leasehold
FREEHOLD PROPERTY:
• Is the highest class of property ownership in England and Wales.
• You own the building and the land upon which it is built
LEASEHOLD PROPERTY
• Comprises of an estate in land subject to a predetermined period of
ownership. Most flats are leasehold and will involve payments of ground
rent and service charge to the landlord.
• Typically for a term of 99 – 999 years. As the lease starts to decrease so too
does the value of the property. Leases with less than 80 years left are
difficult to sell and buyers are reluctant to consider these.

What are my options?
• A Lease extension – Statutory or Voluntary
• An application for Collective Enfranchisement
• Do nothing – You may simply decide to do
nothing. You may have plans to sell the
property in the future but be cautious. By
doing nothing you seriously undermine the
value of your estate and may give yourself a
headache on sale.

Statutory Lease Extension
• The 1993 Leasehold Reform Housing and Urban Development Act
provides a statutory framework in which to extend your lease.
Under the legislation you will automatically become entitled to a
lease extension of 90 years in addition to the unexpired term. The
ground rent will be reduced also to a peppercorn (nil).
• To qualify under the 1993 Act you need to have owned the property
for a period of 2 (two) years. Ownership is determined by the date
of registration with the land registry.
• The right to extend the lease can be assigned by a qualifying lessee.
This means that you can purchase a flat and enjoy the benefits of
the rights created by the Act without waiting 2 yrs.

Collective Enfranchisement
• The 1993 Act as well as providing a statutory framework to
extend your lease also provides for the acquisition of the
freehold reversion. The purchase of the freehold is often
referred to as “Enfranchisement” and you may also see
property being marketed with a “share in the freehold”.
• To qualify for collective enfranchisement there must be at
least two flats in the block with long leases. A claim can be
made to acquire the freehold by at least 50% of the
leaseholders joining together. The benefits are significant and
range from self determination of service charge issues to
extending your leases.

Important points
• A lease is a wasting asset, the shorter it gets the less the property is
worth
• When the lease drops below 80 years remaining you have to pay an
additional sum to the landlord to extend or buy the freehold
• Leases with close to 80 years or less are harder to sell and
mortgage
• If purchasing a ‘short lease’ make sure the seller will assign you the
right to extend
• For a guide to what a lease extension would cost see our calculator
on our website: www.boltburdon.co.uk/private-clients/
enfranchisement

Tenancies & Problem Tenants
John Spence
johnspence@boltburdon.co.uk
DD 020 7288 4788

Avoiding problems with tenancies:
My 5 top tips
1 Choose your tenants carefully
2 Have a good written tenancy
3 Protect the deposit
4 Respond quickly to tenants’
breaches
5 Serve the correct termination
notices

TIP 1: Chose your tenants carefully
 Make certain you or your letting agents carry out vetting and
credit checks using services such as Experian tenant screening
to search the prospective tenant’s credit history, and see if they
have any Bankruptcy Orders or County Court Judgments.
 Obtain copies of the prospective tenant’s bank statements and
arrange for rent to be paid by standing order or direct debit.
 Request references from the prospective tenant’s current
landlord, employer, bank etc.
 Ask where possible for a guarantor such as a parent or
employer to be made a party to the tenancy agreement and
carry out the same vetting and credit checks on them.

TIP 2: Have a good written tenancy
 Use a properly drafted Assured Shorthold
Tenancy agreement.
 Make sure the main terms of the tenancy are
clear as to the length of term, rent, rent periods
and payment dates, and repairing obligations.
 Check the tenancy incorporates all the
termination provisions set down in the Housing
Act 1988 which makes it easier to terminate the
tenancy later on.

TIP 3: Protect the deposit
 Make sure you or your agent protects the deposit
with one of the three main authorised tenancy
deposit protection schemes: The Deposit Service,
Tenancy Deposit Scheme or My Deposits.
 Serve the correct prescribed information notices
upon the tenant within 30 days of receipt of the
deposit.
 Best practice is to re-register the deposit and re-serve
the prescribed information when renewing
fixed term tenancies or when a tenant holds over
as a statutory periodic tenant (Superstrike v Marino
Rodriguez).

TIP 4: Respond quickly to tenant
breaches
 If a tenant misses a rent payment, contact them
quickly to find out what is happening and do not
let arrears accrue.
 If the tenant’s breaches are serious, then you or
your agent should serve a termination notice.
 Keep a record of all your letters, emails and calls
to your tenant to ensure you have a paper trail in
the event you have to take your tenant to Court
or use a dispute resolution service provided by a
tenancy deposit protection scheme.

TIP 5: Serve the correct termination
notices
 At the end of a fixed term Assured Shorthold tenancy, the tenant is
entitled automatically to hold over as a statutory periodic tenant under
the Housing Act 1988.
 To end an AST, you must serve the correct form of notice under Section
21 of the 1988 Act giving the tenant the requisite minimum 2 months’
notice ending on the correct date depending on whether or not the AST
is still within the fixed term or has become a statutory periodic tenancy.
 You cannot serve a Section 21 Notice if a rent deposit was not protected
properly.
 You can serve a separate type of notice seeking possession under
Section 8 of the 1988 Act during the fixed term provided your tenancy
agreement provides for this.
 If a tenant refuses to vacate then you must obtain a Court possession
order.

Taxation & Estate Planning –
Inheritance Tax, Domicile, Wills
Michael Culver
michaelculver@boltbudon.co.uk
DD 0207 288 4741

Declarations of Trust
 Property ownership agreement
 Sets out:
 Beneficial ownership
 Legal title
 Beneficial ownership - percentages
 Return of initial deposits
 Rights of pre-emption
 Parents loaning money
 Contribution to bills, mortgage payments etc

Tax Considerations: Investment
Property
 Income Tax
• Rental Income – use lowest rate income tax band –
declaration of trust
• Interest on mortgages are tax deductible – repayments
are not
• Deduct all expenses

Property
 Inheritance Tax
• Primarily a tax on death but can be charged on
Lifetime gifts
• Nil rate band (NRB) £325,000 fixed until 2015
• Anything over and above – 40% tax
• Rental Income – gift of surplus income – strict rules –
records needed
• Be careful of “Gifts with Reservation
of Benefit” (GROB)

Property
 Capital Gains Tax
• When sell or ‘dispose’ of an asset
• Deduct costs & losses from previous years
• Annual allowance £11,000
• Transfer a share to someone to make use of x2
allowances
• Taxed at 18% or 28% depending on your income tax
rate
• Last 18 months of ownership are ignored
• Changes April 2015 – removal of election

Funding your Purchase
How will you fund the purchase?
 Gift from family?
 “Potentially Exempt Transfer” (PETs)?
 Term assurance
 Mortgage
 Tax deductable so may be preferable to a cash purchase
 Life cover - written in trust
 Cash buyer
 No tax deduction for income tax

Purchasing in UK but non-dom?
 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
 17-20 tax years
 If non dom, UK assets taxed
 If dom – worldwide estate taxed
 Capital gains tax
 April 2015 – non doms subject to it
 No election for non doms
 Succession of assets on death
 Get specialist advice and prepare Wills in both countries.

Marriage Agreement
Darrell Webb
darrellwebb@boltburdon.co.uk
DD 020 7288 4795

Protecting your investment
 Ownership in sole name
 Declaration of Trust
 Joint with third party
 Marriage Agreement

MARRIAGE AGREEMENTS
 Pre-nuptial Agreement – must be entered
into not less than 21 days before the
marriage.
 Post-nuptial Agreement – can be entered
into at any time after marriage.

COMMON MISCONCEPTIONS
‘Not worth the paper they’re written on’
‘They’re totally ignored by the Courts’
‘Absolutely no point in having one’
‘A complete waste of money’

THE FACTS
Radmacher v Granatino [2010]
“The Court should give effect to a nuptial
agreement which is freely entered into by each
party with a full appreciation of its
implication, unless in circumstances where it
would not be fair to hold the parties to the
agreement.”

(1) FREELY ENTERED INTO
Timing – The agreement should be signed
not less than 21 days prior to the marriage.
Importance of agreement – Would the
parties have married without the
agreement?
Personal circumstances, duress and undue
pressure – are there any warning signs.

(2) WITH A FULL UNDERSTANDING OF THE
IMPLICATIONS
 Independent Legal Advice – The parties
must understand the terms and legal effect
of the agreement.
 Disclosure – Full and frank financial
disclosure should be provided.
 Negotiation – It is important that the parties
had the opportunity to negotiate the terms of
the agreement.

(3) FAIR
 Non-Matrimonial Property – there is nothing
inherently unfair in distinguishing between
wealth accumulated during the marriage and
pre-marital property or property that one
party expects to receive from a third party.
 Children – the agreement cannot prejudice
the reasonable requirements of any child of
the family.

(3) FAIR CONTINUED...
 Need– the agreement should not result in one
party being left in a predicament of ‘real need’
 Changing Circumstances – the agreement should
as far as possible plan for future changes in the
parties’ circumstances.
 Generally – the parties views as to what
constitutes a ‘fair’ division of assets on separation
will be important, particularly where they address
existing circumstances.

Why Bolt Burdon?
 City lawyers for city people – with more than 25 years experience
working in the City you can be confident that you’re in safe hands.
 A ‘one stop shop’ for all your legal needs – there’s no need to go
anywhere else, we can deal with all your legal needs.
 Flexible appointments – we understand that it is not always
possible to visit your lawyer during working hours. We therefore
offer flexible appointments to work around you.
 Office visits – if you can’t come to us, we’ll come to you.
 Direct contact – you can call or email our lawyers direct.
 Fixed fees – we charge fixed fees, so you know exactly what the
cost will be from start to finish.

Bolt Burdon Solicitors
Please contact us with enquiries:
Sophie Shaladi - Conveyancing
E: sophieshaladi@boltburdon.co.uk
T: 020 7288 4798
William Bethune – Enfranchisement
E: williambethune@boltburdon.co.uk
T: 020 7288 4743
John Spence – Property Disputes
E: johnspence@boltburdon.co.uk
T: 020 7288 4788
Michael Culver – Tax planning
E: michaelculver@boltburdon.co.uk
T: 020 7288 4741
Darrell Webb – Matrimonial
E: darrellwebb@boltburdon.co.uk
T: 020 7288 4795

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