IpShineonline, Author at Iain Wallis

Buying Investment Property – What Are the Risks?

January 31, 2012 By IpShineonline

I firmly believe that property investment is a great investment and when you look at the long term trends it’s far from risky, especially when compared with the alternatives.

The UK is set to suffer a severe shortage of property and very high demand over the next 20 years
There will always be a demand for rental properties
Historically property has always delivered great returns over time

The UK has a tradition of home ownership. Between 1971 and 2002 it increased from 49% to 69%.

However, there will always be a need for rental property, due to economic factors, lifestyle and a moveable jobs market. The average age of a first time buyer, who is not given financial help, is now 37.

You can see there will always be a demand for rental accommodation.

The UK population of 61.4 million today will rise to 71.6 million by 2033. This will put massive pressure on housing stock. The predicted shortage is 750,000 homes by 2025. Short supply will impact rental values.

With finance much tighter, the banks’ reluctant to lend and house price confidence shaky, it’s never been more important to make your money work when you buy an investment property.

You achieve this by buying Below Market Value (BMV). Get this right and you will have an income producing asset – from a property that historical data from Halifax PLC has shown doubles every 7 – 10 years.

There is no guarantee that such fantastic growth will continue. No one would deny that we have seen an adjustment in the housing market since it overheated in 2007.

But even if the current economic pressures in the UK move this cycle to a longer timeframe, if you have invested wisely you will still benefit from passive income – which boosts your income. Plus because you bought BMV you have instant equity in your property.

“But I like my money in the bank. I get a statement each month and I know it’s there.”

Yes that’s very true – but here’s the thing:

The best rate paid by a bank to tie up your cash in a two year bond is 4.05%.
A simple deposit account pays 3.15%.
Inflation is running at a conservative 5.7%

So in actual fact you are losing at best 1.7% or at worst 2.6% per cent on your savings. Every year!

Is that a good investment?

Why use a Property Company

December 7, 2011 By IpShineonline

Whether you use a Property Company depends on a variety of factors and there is no “one size fits all” solution.

Things to bear in mind:

1. The level of your expected business profits

2. Are your business profits are treated as ‘investment income’ or trading income (see earlier blog)

3. What other taxable income do you have

4. How exposed to risk is your property business

5. How long you intend to be in the property business for……..your exit strategy is not the front door!

6. What other property activities are you engaged in

For many investors, using a Property Company can be very tax efficient.

Don’t underestimate the possibilty of paying just 20% Corporation Tax on profits and capital gains, the ability to reinvest these post tax profits, the ability to time when you take income from the company and pay income tax and finally to pass the compnay down through generations.

100% Tax deduction for renovation costs

December 7, 2011 By IpShineonline

I thought I’d share a generous tax break called the Flat Conversion Allowance or FCA.

Rather than invest in semi detached or terraced houses, why not think outside the box and look at disused flats above shops or commercial premises?

They will easily be cheaper, can be quickly renovated to add value and they come with a 100% tax break!

To qualify for this generous tax break there are certain key criteria:

It must be built before 1980

The ground floor must be used for a business

The upper floor must have originally been intended as living accommodation

Must have been vacant or used solely for storage for a minimum of a year before the conversion starts

Any property can have no more than four storeys above the ground floor

The FCA relief allows the purchaser (you or your company) to claim a tax allowance for the cost of capital expenditure. Qualifying expenditure is capital expenditure incurred on, or in connection, with:

the conversion of part of a qualifying building to a qualifying flat or

the renovation of a flat in a qualifying building to create a qualifying flat, or

repairs incidental to the conversion or renovation of a qualifying flat, or

the provision of access to a qualifying flat.

Examples of qualifying expenditure are the costs of dividing a single property to create a number of separate flats, and the costs of building dividing walls or installing a new kitchen or bathroom.

Capital repairs to the property incidental to the conversion or renovation may also qualify.

Expenditure incurred in connection with the conversion or renovation of a flat may include costs outside the direct boundary of the new or renovated flat such as the creation of stairwells within the building or provision of extension, solely to provide access to the new flats. It may also include architect’s and surveyor’s fees.

Examples of associated costs that may qualify are:

inserting or removing walls, windows, or doors,

installing and upgrading plumbing, gas, electricity or central heating,

re-roofing incidental to the conversion/renovation,

providing access to the flat(s) separate from the commercial premises, including extensions to the building to contain this access, if required,

providing external fire escapes where regulations require.

Some expenditure does not qualify for flat conversion allowance (FCA).
Expenditure does not qualify if it is incurred on or in connection with:

the acquisition of land or rights in or over land,

an extension to the building (unless it is required to give access to a qualifying flat),

the development of land adjoining or adjacent to the building. This includes conversions forming part of a larger scheme of development, and

the provision of furnishings or other chattels.

Normally a deduction for this kind of capital expenditure would only be given when you sold the property as a deduction for capital gains tax. Here though, a 50% taxpayer would immediately recover half their renovation costs from HMRC.

It gets better! Should this claim create a loss, it can be used to offset against other income, say a salary, The loss does not have to be carried forward to offset against future profits.

So next time you are out looking for BTL property, keep your eye out for some commercial stuff

To Your Property Success!

Iain