Iain Wallis

Proven Tax Strategies for High Net Worth Individuals

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Be careful how you treat Grandma’s house

June 27, 2014 By Iain

Have you noticed how the recent rise in house prices has encouraged a spot of optimism and got everyone to talk up the value of their property? All well and good until someone inherits a property and then the value rather interestingly seems to head the opposite way, downwards!

Understandable maybe, because with the Inheritance Tax (IHT) nil rate band remaining frozen at £325,000 and the rising property market pushing middle England into the arena of Inheritance Tax; next of kin are keen to make sure they don’t hand over too much IHT to the tax man. Regardless of who you are HMRC will take a flat 40% of all your estate over £325,000. OUCH!

A note of caution though, in 2012/13 HMRC collected an extra £108 million of IHT by challenging and “adjusting” property valuations. They have the right to investigate valuations and over the last few years have been exercising this more aggressively than in the past. This trend is I’m sure going to continue given the improving state of the property market and HMRC coming under even more pressure to maximise revenues.

HMRC has four years from the end of the tax year in which someone dies to challenge an IHT calculation, longer if it can prove that executors did not ensure the calculation was correct or they had been perhaps ‘negligent’. This gives them plenty of time to check and compare similar properties with the Land Registry. So, take care! If you decide to sell granny’s house not long after the funeral for a price markedly higher than the value declared on the IHT form you could be heading for trouble. If you declare a value which seems low compared to what granny paid for it beware! Both will raise the suspicions of HMRC and could see you with a fine of up to 100% of the extra liability. The average amount of tax collected from this type of investigation in 2012/13 was £34,000 – imagine yourself as a beneficiary and having to find that amount of extra tax totally out of the blue!

As with all IHT planning, it’s all about being prepared. If you’re a beneficiary or an executor of an estate take steps as soon as you can to record the condition of the property i.e. by taking photographs and keep records of any repairs you undertake.

Whilst it will cost you in fees, these could possibly be reclaimed from the estate later, have a professional valuation undertaken by a Chartered Surveyor, who specialises in valuing land and buildings for people’s estates. Ask them to provide a realistic price of the property’s market value – the ‘open market’ value and ensure they take into account anything which might increase or decrease the value, such as:

a) If the property is in need of repair, ask the valuer to consider reducing the value to take this work into account.

b) There may be something about the property which makes it particular appealing to buyers i.e. an unusually large garden or access to other development land. If the property has features which make it more attractive then the valuation may need to increase.

It’s probably less likely that HMRC will challenge a valuation carried out by a Chartered Surveyor, compared to one say done by the local estate agent or by yourself, so it may be worth paying someone to give you that peace of mind.

It’s not all bad though, if you discover that the property had been over valued at the time of probate and sold for less, then you have up to four years from the death to claim the IHT overpayment back from HMRC.

If you need any help with IHT planning, or are interested in receiving further information or booking a strategic session with Iain, please contact Jacqueline on 0191 206 4080 or email admin@iainwallis.com.

Filed Under: Inheritance Tax, Tax avoidance, Uncategorized Tagged With: HMRC, inheritance tax, Inheritance tax Jimmy Carr K2, North East, property investing, tax avoidance, tax evasion

5 Common Mistakes when Property Investing

May 10, 2012 By Iain

Speaking to you as a property investor who bought his first investment property in 2006 and who has continued to vigorously acquire in the last two years it’s sometimes good to reflect on lessons learned and how I’m now qualified to say that I genuinely believe property is a sound investment while others just don’t get it.

Have I made mistakes? Sure!

Have I learnt from them? Oh yes!

So can you imagine how easy property investing will be if you avoid these mistakes?

 1. This is a serious business

Absolutely! This is property not monopoly. Treat it like a game and hope that someone will land on your property and yes you will fail. Cashflow is the lifeblood of any business and property trust me is no different and without good cashflow then your business will fail. Yes the acquisition process is fundamental and where you make your profit but any property must demonstrate a good return and cashflow well, So aim for a minimum of 8% yield (gross rental/ cost of property and refurbishment) and you can’t go wrong, though typically I aim and get much more from single lets in my goldmine area.

 Are you focused on the cashflow?

 

 2. All the gear and no idea

If you are a skier you will know what I mean or even a golfer. Indeed any recreation you undertake you will see those who’ve the state of the art kit but can’t use it. Property knowledge is no different. Seminar junkies trek from location to location investing more and more cash with different people to find the missing piece of the property puzzle. Believe me there is no missing piece and the property market is always evolving. So, yes I learnt from two of the leaders in the property game and yes I continue to train with and for them but here’s the thing I’ve taken action and built a portfolio of property. So you’ve the skills to invest so go practice them. Invest your cash in a property not another training programme unless it’s furthering your knowledge alongside your core activity.

 Are you the course junkie?

 

 3. No clear vision

When I ask people why they want to invest in property a typical response would be “I want to get rich or maybe I want to quit my job”. Now this might sound perverse but that’s not a good enough reason. It’s not clear enough, it’s not specific enough and has no clear vision as to what the world will look like when you get there. I want to pay for my kids education! Great but how much do you need for that and how many properties will do that, or how many deals do I have to package and what will tell you that that goal or vision has been achieved. Unfocussed you will sleepwalk along the property road and be prepared to wave as those with a clear vision motor past at speed.

 Like me you’re focused on clearly defined goals aren’t you?

 

 4. There’s no F in planning

Any property purchase must be preceded by full due diligence and research so that you are able to invest with all the facts. Will there be a high level of demand for your rented property at the right amount of rent to provide the cashflow you need? What are house prices doing in that particular area, what comparables of sold houses do you have? Don’t make the mistake of buying because it’s cheap: it’s probably cheap for a reason. If you’ve done the research and are happy with the risk then yes buy cheap but ONLY after you’ve checked everything. I buy stuff now that I wouldn’t have touched two years ago but only because I’m thorough in my research.

 Be sure to buy after all thorough due diligence.

 

5. Patience is a virtue

Property investing is no race and no competition. Just because someone is buying a load does not mean that you should be. Their circumstances may be different. They may have more time, money whatever but it really doesn’t matter. What matters is that you go at your pace to learn, research etc and then take action armed with all the facts but please take action. There are thousands of houses out there for sale and the right deals for you will come along and you will know when they are the right deals, believe me.

 So to paraphrase Cpl Jones, “Don’t panic Capt Mainwaring!”

Know that when you are aware of the above mistakes you will take action to avoid them and your property investing journey will be a rich and fulfilling one.

To your continued success.

 

Filed Under: property investment, Uncategorized Tagged With: Capt Manwaring, Newcastle, North East Property, property investing

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