How can you future proof your London property investment amid these uncertain times, writes Hannah Aykroyd
Prime Central London residential property has been the best-performing asset class in the world for 25 years. Futureproofing residential property investments over the past two and a half decades hasn’t required much strategy or planning beyond buying and holding. Today’s market is different.
In these tumultuous days, it’s exceptionally difficult to make reliable forecasts. At Aykroyd & Co, we remind our clients to sell on the sound of trumpets and buy on the sound of drums. A savvy investor aims to take advantage of market uncertainties.
There are deals to be had, and there’s less competition as the timid buyers sit on the sidelines. This represents a superb opportunity if investors take the time to futureproof their investments by buying wisely and structuring advantageously.
How does one futureproof residential property investments today?
Negotiate, negotiate, negotiate
Once the perfect Prime Central London property has been found, the agent should make sure the client pays as little as possible for it. We use relevant comparables, we make sure we know about weakness in the property that might offer a point of negotiation, and we learn as much as we can about the vendor’s level of motivation.
The general rule of thumb is to aim for three rounds of negotiation to reach the vendor’s lowest acceptable price. Finally, it’s important to remain objective. It can be incredibly difficult for buyers to remain firm in negotiations when they’ve fallen in love with a property – use your buying agent.
Minimise Stamp Duty Land Tax (SDLT)
You should buy with the intention to hold for a minimum of 5-10 years, in order to justify SDLT outlay. Beyond that, there are several strategies you can pursue to minimise SDLT on a given transaction, such as sourcing unmodernised properties, where the taxable purchase price is significantly lower than the total investment.
As tax is a highly specialist area, use a trusted tax advisor. Richard Perry, of Grant Thornton UK LLP has many years of experience advising private clients investing in UK property. The tax around property has changed quite drastically since 2013, and many tax structuring advantages are no longer viable.
Richard advises to keep things simple, with properties intended to inhabit then keep it in personal names, with investment properties his advice is more complex and dependent on individual circumstances.
‘When looking at residential property for investment purposes, a key point is how much the property is worth as that can drive whether a corporate structure is worth considering,’ says Richard.
‘A key benefit of using a company for a high-value purchase is that a subsequent purchaser has the opportunity to buy the shares of the company that holds the property, rather than buying the property directly, thus eliminating SDLT.
‘However, if this is not an option (perhaps when looking to buy a number of smaller properties), another benefit of using a corporate structure is in relation to rental profits.
‘Personal income tax rates on rental profits can go up to 45 per cent, whereas the rate of corporation tax is 19 per cent (going down to 17 per cent in 2020).
‘Additionally, if you keep the property in your personal name you can only expect basic rate relief for any mortgage interest. In contrast, you should be able to write off the full costs of the mortgage within the company. Thought will be needed with regard to profit extraction, as this can materially affect the effective rate of tax.
‘Residential SDLT can go up to 15%, whilst commercial rates go up to 5 per cent. If someone’s buying a number of flats in a block (six or more) as part of the same transaction, they could qualify for commercial rates. This can materially reduce their SDLT liability.
‘Furthermore, there are other reliefs, such as Multiple Dwellings Relief which should also be considered if more than one residential property is being acquired.’
Work with a Professional Currency Broker
Consulting a currency broker is advisable when exchanging significant currency for a transaction.
We work closely with Jamie Lesinski of Prime Cap who sets fees individually for each client, according to their needs.
‘There are a number of ways to frame our work, but in simplest terms, we offer commercial rates and the lowest fees and lowest margins,’ says Jamie. ‘To be more specific, the high street charges from 1.5 per cent to 6 per cent on every transaction. That’s a big bite on a large transaction.
Most private banks operate at 0.75 per cent, which is obviously much more acceptable. We offer fees of 0.1 – 0.25 per cent. We also have the ability to react immediately to triggers in the market, thus reducing the risk of any sudden drops in the home currency.’
Following these three guidelines helps to save a client many hundreds of thousands of pounds. It is sometimes said of property that profits are made on the way in, rather than on the way out.
We ensure our clients enter into their residential property investments with minimum outlay, thus futureproofing their investment against any vagaries in the market and ensuring maximum long-term profit.
Hannah Aykroyd is managing director and founder of boutique London buying agency Aykroyd & Co