January « 2010 « PS Investors Blog

Archive for January, 2010

The Truth About Sandwich Lease Options

January 27th, 2010

The use of sandwich lease options has become an increasingly popular strategy for investors who are looking to not only help home owners sell quick, but also assist those who want to get on the ladder (and thereby enabling the investor to make a decent profit in terms of rental income and future capital gains – the so called ‘win-win-win’). Yet, it has also left many scratching their heads with regards to the best way to conduct the transaction as well as the future legal implications for all parties involved. Please see below an interview with Richard Spencer, a commercial lawyer and one of the UK’s thought leaders on effectively making the use of lease options in their various forms:

“I am a partner in the Commercial Property team at BPE Solicitors LLP (BPE). BPE is a commercial law firm based in Cheltenham, Gloucestershire and acts for a range of clients including property investors, developers, PLCs and entrepreneurs.

I have advised property developers in the use of option agreements for 6 years. I started to offer options to property investors around 18 months ago, as conventional mortgages became more difficult to obtain.”

Sandwich options involve the use of two option agreements. The vendor grants the first option to the investor. A second option is granted to a tenant buyer, who occupies the property under an assured shorthold tenancy agreement. Many investors have been lead to believe that sandwich options are the holy grail. Personally, I would avoid them. They are complex and difficult to put together, the risks for the tenant buyer are high and there is a much higher chance that the investor’s back-end profit will never materialise. However, some deals may require a sandwich to make the figures stack up. The only way I can think they can possibly work is to ensure that the legal owner grants both options, so that the tenant buyer can later show its lender that the seller has owned the property for over six months and that payments have been made towards the full purchase price and not towards an investor’s profit. The fact that the seller then has to account to the investor for the difference between the two prices, should not (in theory!) affect the tenant buyer’s disclosure to its lender.

By granting an option to a tenant buyer the investor is limiting the price he can later sell for. Why not just take a purchase option and rent out the property? At least that way, the investor can retain any capital appreciation for himself.

3) What are the essential documents that need to be in place?

An investor taking an option needs the following:

- option agreement

- irrevocable power of attorney for each vendor (although if there is more than one vendor, there needs to be more than one attorney)

- form RX1 signed by the vendor

An investor may also ask the vendor to sign a Transfer Deed (TR1) in case the vendor later disappears.

An investor granting an option to a tenant buyer just needs an option agreement and AST.

The use of an irrevocable power of attorney does not guarantee that the investor will be able to sign documents in the name of the vendor. The vendor may later suggest that he was under duress to sign and a court may quash the power. However, it’s worth having one signed as back-up. The best way to complete a sale is to have the vendor sign the Transfer Deed in the traditional way.

Also having a Transfer Deed signed now does not guarantee that this will be capable of registration at the Land Registry. The Land Registry changes the look of the form now and again and if the form changes, an old version will not be registered. Also, on registration the investor’s solicitor needs to show on form AP1 which solicitors acted for the vendor on completion. If no firm acts, the vendor must complete and sign form ID1 and provide a passport style photograph. This form needs to be partially completed by a solicitor who has checked the vendor’s ID and certified the photo to confirm it is a true likeness of the vendor. Form ID1 was introduced to combat property fraud. The simplest solution is for the option agreement to confirm that the investor will pay the seller’s legal fees on completion and also to leave a ‘carrot’ for the seller on completion, to motivate him to instruct a solicitor and complete the sale. Some investors offer a small percentage of any equity or a percentage of the proceeds in excess of a certain sale price. All of this needs to be set out in the option agreement.

4) How can investors ensure that their position is protected when undertaken a sandwich lease options? Are there certain clauses in the contracts that need to be in place in order to be legally binding?

- The main risks lie with the tenant buyer. The investor should ensure he registers an agreed or unilateral notice to protect his option and also a Restriction to stop any further dealings with the property. The tenant buyer will also want to register a notice to protect his option.

5) Are there any circumstances where you would not recommend an investor going ahead with a sandwich option agreement?

- Many commentators advise investors to avoid any option deal whether the seller already has severe financial difficulties. Also, it is common sense but investors should carry out all of the usual checks on a tenant buyer as they would a normal tenant.

6) Do you have a set option period that you recommend to your clients – or does it depend on the deal?

- The length of the option depends on the deal. The option period needs to be long enough to allow for the value to increase enough to make a good profit, unless the investor is only interested in cashflow. The period also needs to be long enough to avoid paying any early redemption penalties. An option merely gives certain control over a property. An option is not as good as legal ownership, so an investor should aim to complete the purchase as soon as possible. Whilst the option is in place, plenty can change and cause the deal to fall over.

7) As an investor, can you assign a sandwich option on to another party?

- An option can be assigned to a third party, so long as the contract expressly permits this. An investor will need a Deed of Assignment to assign the option. Following an assignment, the investor must also give written notice of the assignment to the vendor to ensure that it is effective in law.

Do the courts view a tenant buyer differently to any other tenant (should any issues arise – ie, because of the fact they have an interest in the property)?

- The tenant buyer is a normal tenant under an AST. The option is merely a bonus but, so long as it is set up correctly, the option gives the tenant buyer an interest in the land. The option should clearly state that it may be terminated by the vendor if the tenant breaches the AST or if the AST is lawfully ended. If the option does not allow this, the AST may end but the tenant buyer may continue to have an option to purchase! For this to happen, he would also need to continue to make the monthly option payments.

9) With regards to option credits (ie. rental supplements which will go towards the tenant buyers purchase price) – how should this be managed to keep everything safe for all parties?

- The safest method for tenant buyers is to ensure that all monthly option payments (as opposed to rent) are held by the investor in a separate bank account and on trust for the tenant buyer. This will need to be documented either in the option agreement or in a separate deed. This method is similar to commercial property landlords who hold rent deposits. As the funds are held on trust, they should not form part of his estate on death or insolvency. However, if the investor goes bust the tenant buyer may need to bring the trust to the attention of the official receiver or trustee in bankruptcy before he takes the money.

- Some options also allow further credits or allowances towards the purchase price. For example, in one option I worked on the investor allowed the tenant buyer a further 70% of the option fees paid, so long as the payments were made on time (up to an agreed maximum). So if the tenant buyer paid £100, the investor allowed a further credit of £70 towards the price. Some caution needs to be exercised here, as lenders may not allow credits to be made in this way, just as the don’t always allow gifted deposits or incentives made by developers. The option should deal with this scenario and allow the tenant buyer the discretion to choose between an allowance or a price reduction.

10) Would you recommend investors taking on a tenant buyer that has been repossessed or made bankrupt in the past?

- Investors will be better placed than I am to choose tenant buyers. Some multi-millionaires were once bankrupt. The checks needs to show whether the tenant’s income is sufficient to make the payments under the option and the AST. If there are going to be problems, they usually start early in the option period, so investors should grant six month ASTs.

11) How can investors get hold of you Richard?

I can be contacted on 01242 248232 or by email at richard.spencer@bpe.co.uk.

1) Can you start by giving us a bit of information about your firm and how long you have been dealing with lease options? I am a partner in the Commercial Property team at BPE Solicitors LLP (BPE). BPE is a commercial law firm based in Cheltenham, Gloucestershire and acts for a range of clients including property investors, developers, PLCs and entrepreneurs. I have advised a range of property developers in the use of option agreements for 6 years. I started to offer options to property investors around 18 months ago, as conventional mortgages became more difficult to obtain.

2) Sandwich Lease Options have been very popular in the US and Australia but have only, perhaps in the last few years, become increasingly popular in the UK. What are the fundamental legal aspects that people need to be aware of? Sandwich options involve the use of two option agreements. The vendor grants the first option to the investor. A second option is granted to a tenant buyer, who occupies the property under an assured shorthold tenancy agreement. Many investors have been lead to believe that sandwich options are the holy grail. Personally, I would avoid them. They are complex and difficult to put together, the risks for the tenant buyer are high and there is a much higher chance that the investor’s back-end profit will never materialise. However, some deals may require a sandwich to make the figures stack up. The only way I can think they can possibly work is to ensure that the legal owner grants both options, so that the tenant buyer can later show its lender that the seller has owned the property for over six months and that payments have been made towards the full purchase price and not towards an investor’s profit. The fact that the seller then has to account to the investor for the difference between the two prices, should not (in theory!) affect the tenant buyer’s disclosure to its lender. By granting an option to a tenant buyer the investor is limiting the price he can later sell for. Why not just take a purchase option and rent out the property? At least that way, the investor can retain any capital appreciation for himself.

3) What are the essential documents that need to be in place? An investor taking an option needs the following:

an option agreement;
an irrevocable power of attorney for each vendor (although if there is more than one vendor, there needs to be more than one attorney)
a form RX1 signed by the vendor

An investor may also ask the vendor to sign a Transfer Deed (TR1) in case the vendor later disappears. An investor granting an option to a tenant buyer just needs an option agreement and AST. The use of an irrevocable power of attorney does not guarantee that the investor will be able to sign documents in the name of the vendor. The vendor may later suggest that he was under duress to sign and a court may quash the power. However, it’s worth having one signed as back-up. The best way to complete a sale is to have the vendor sign the Transfer Deed in the traditional way.

4) How can investors ensure that their position is protected when undertaking a sandwich lease options? Are there certain clauses in the contracts that need to be in place in order to be legally binding? The main risks lie with the tenant buyer. The investor should ensure he registers an agreed or unilateral notice to protect his option and also a restriction to stop any further dealings with the property. The tenant buyer will also want to register a notice to protect his option.

5) Are there any circumstances where you would not recommend an investor going ahead with a sandwich option agreement? Many commentators advise investors to avoid any option deal whether the seller already has severe financial difficulties. Also, it is common sense but investors should carry out all of the usual checks on a tenant buyer as they would a normal tenant.

6) Do you have a set option period that you recommend to your clients – or does it depend on the deal? The length of the option depends on the deal. The option period needs to be long enough to allow for the value to increase enough to make a good profit, unless the investor is only interested in cashflow. The period also needs to be long enough to avoid paying any early redemption penalties. An option merely gives certain control over a property. An option is not as good as legal ownership, so an investor should aim to complete the purchase as soon as possible. Whilst the option is in place, plenty can change and cause the deal to fall over.

7) As an investor, can you assign a sandwich option on to another party? An option can be assigned to a third party, so long as the contract expressly permits this. An investor will need a Deed of Assignment to assign the option. Following an assignment, the investor must also give written notice of the assignment to the vendor to ensure that it is effective in law.

8)Do the courts view a tenant buyer differently to any other tenant (should any issues arise – ie, because of the fact they have an interest in the property)? The tenant buyer is a normal tenant under an AST. The option is merely a bonus but, so long as it is set up correctly, the option gives the tenant buyer an interest in the land. The option should clearly state that it may be terminated by the vendor if the tenant breaches the AST or if the AST is lawfully ended. If the option does not allow this, the AST may end but the tenant buyer may continue to have an option to purchase! For this to happen, he would also need to continue to make the monthly option payments.

9) With regards to option credits (ie. rental supplements which will go towards the tenant buyers purchase price) – how should this be managed to keep everything safe for all parties? The safest method for tenant buyers is to ensure that all monthly option payments (as opposed to rent) are held by the investor in a separate bank account and on trust for the tenant buyer. This will need to be documented either in the option agreement or in a separate deed. This method is similar to commercial property landlords who hold rent deposits. As the funds are held on trust, they should not form part of his estate on death or insolvency. However, if the investor goes bust the tenant buyer may need to bring the trust to the attention of the official receiver or trustee in bankruptcy before he takes the money.

Some options also allow further credits or allowances towards the purchase price. For example, in one option I worked on, the investor allowed the tenant buyer a further 70% of the option fees paid, so long as the payments were made on time (up to an agreed maximum). So if the tenant buyer paid £100, the investor allowed a further credit of £70 towards the price. Some caution needs to be exercised here, as lenders may not allow credits to be made in this way, just as the don’t always allow gifted deposits or incentives made by developers. The option should deal with this scenario and allow the tenant buyer the discretion to choose between an allowance or a price reduction.

10) Would you recommend investors taking on a tenant buyer that has been repossessed or made bankrupt in the past? Investors will be better placed than I am to choose tenant buyers. Some multi-millionaires were once bankrupt. The checks needs to show whether the tenant’s income is sufficient to make the payments under the option and the AST. If there are going to be problems, they usually start early in the option period, so investors should grant six month ASTs.

11) How can investors get hold of you Richard? I can be contacted on 01242 248232 or by email at richard.spencer@bpe.co.uk. Our website can be found by clicking here: BPE Solicitors LLP.

Share and Enjoy:

Tags: BPE Solicitors LLP, commercial lawyer, Deed of Assignment, early redemption penalties, form AP1, form RX1, irrevocable power of attorney, lease option agreement, Richard Spencer Lease Options Expert, Richard Spencer Lease Options Solicitor, sandwich, sandwich lease options, tenant buyer, The Land Registry, Transfer Deed (TR1), win win win
Posted in Due Diligence, Lease Options, Tips for Property Investing | 1 Comment »

Taxation When Doing Lease Options Deals

January 27th, 2010

No Comments

1) What are the major taxes that investors should be concerned with when dealing with lease option transactions?

Well the largest of them is the possible liability of Inheritance Tax (IHT) and Capital Gains Tax (CGT). Investors will also need to declare any income tax they are in receipt of in much the same way as with any other buy to let property. Note you will be able to offset this latter tax against certain business expenses.

2) How do they apply to lease options?

When it comes to the option enforcement point investors should be aware that both CGT and IHT will apply – so even if you are planning to flip the lease option, be sure to account for the tax liability. As many readers would know, however, investors have set allowance of £325,000 for IHT and £10,100 CGT (note that these have been changing year in year out recently). If you are doing lease options, then ensure you are doing it in the correct way to mitigate any potential tax liability.

3) Can taxes be offset in any way?

As mentioned above, income tax can be offset. Having spoken to the Inland Revenue about this issue, my understanding is that CGT and IHT taxes cannot be offset in any way due to the complexity of undertaking lease option agreements.

4) Are there any tax benefits in undertaking lease options?

No significant tax benefits, though each case should be viewed on merit before giving any specific advice, as with all of these cases, there is unfortunately no generic answer. Drop me a line and I will be able to outline the current, medium term and long term implications on a per deal basis (contact details are below).

5) Should the Inland Revenue be informed prior to do any kind of lease option transaction?

No, there is no necessity of doing this

6) Should investors file their tax returns in the same way?

Yes, everything is done in the same way as they would on their standard tax return.

7) Should the optioner (grantor) be aware of any tax implications?

No, none that can be noted at present (subject to change by the HMRC).

If, for example, if the option is exercised after the 5 year PPR period granted to homeowners – would they be subject to CGT (if they have not lived in the property)?

Yes, there would be the liability to CGT but the usual allowances would kick at the rate defined by the HMRC each year

For any lease option transaction, it is highly advisable to seek professional advise via a tax specialist or an accountant with the relevant knowledge on the subject. The answers above could be subject to changes, so we would also recommend investors be vigilant when doing business. For independent and objective advice, Simon can be contacted via email at thetaxinsider@yahoo.com orWith With

With many property investors incorporating lease options into their buying strategy, PS Investor Services have interviewed tax expert and IFA, Simon Goody, on the necessary implications when conducting these kinds of transactions. Please see the short interview below:

1) What are the major taxes that investors should be concerned with when dealing with lease option transactions? Well, the largest of them are the possible liabilities of Inheritance Tax (IHT) and Capital Gains Tax (CGT). Investors will also need to declare any income tax they are in receipt of in much the same way as with any other buy to let property. Note you will be able to offset this latter tax against certain business expenses.

2) How do they apply to lease options? When it comes to the option enforcement point investors should be aware that both CGT and IHT will apply – so even if you are planning to flip the lease option, be sure to account for the tax liability. As many readers would know, however, investors have set allowances of £325,000 for IHT and £10,100 CGT (note that these have been changing year in year out recently and should be monitored). If you are doing lease options, then ensure you are doing it in the correct way to mitigate any potential tax liability.

3) Can taxes be offset in any way? As mentioned above, income tax can be offset. Having spoken to the Inland Revenue about this issue, my understanding is that CGT and IHT taxes cannot be offset in any way due to the complexity of undertaking lease option agreements.

4) Are there any tax benefits in undertaking lease options? No significant tax benefits, though each case should be viewed on merit before giving any specific advice – as with all of these cases, there is unfortunately no generic answer. Drop me a line and I will be able to outline the current, medium term and long term implications on a per deal basis (contact details are below).

5) Should the Inland Revenue be informed prior to do any kind of lease option transaction? No, there is no necessity of doing this.

6) Should investors file their tax returns in the same way? Yes, everything is done in the same way as they would on their standard tax return.

7) Should the optioner (grantor) be aware of any tax implications? No, none that can be noted at present (subject to change by the HMRC).

8)If, for example, if the option is exercised after the 5 year PPR period granted to homeowners – would they be subject to CGT (if they have not lived in the property)? Yes, there would be the liability to CGT but the usual allowances would kick at the rate defined by the HMRC each year

Share and Enjoy:

Tags: Business Expenses, Capital Gains Tax (CGT), IFA, Income Tax, Inheritance Tax (IHT), Inland Revenue Lease Options, Lease Options, Lease Options Taxation, PPR period and lease options, Simon Goody, Tax allowances, tax expert
Posted in Business Management, Lease Options, Property Taxation | No Comments »

Property Investor / Landlord Tax Management

January 20th, 2010

2 Comments

You will be aware that deadline for filing you compulsory tax returns is 31st January. Please see a short interview with accountant and taxation expert Arthur Kemp on the various aspects of maintaining good books; completing the returns; handling procedures if you have a mixture of property investments and several other hints, tips and useful information.

1) What are the most important factors that need to be taken into account when managing your property tax affairs? By far, the most important factor is to have excellent record keeping. Keep all your receipts, statements, bills, utility records, cheque stubs etc. As well as keeping these items, I recommend to have a weekly or monthly income & expenditure list – which can be done within a simple Excel spreadsheet. Have two columns: one for and the other for expenditure – with brief descriptions of the item such as: “June rental income, 123 North St.” or “Council Tax September 345 Smith St.” Remember that even if this information is not used for the tax return yourself, your accountant is likely to charge you less (as you are saving them time by maintaining good records). Personally, I find the key is to regularly update the data. Leaving it to the end of the tax year, always results in two weeks of mayhem!

2) Is it a process that a landlord/lady do themselves? If you feel that you can do your taxes on your own use the standard manual way with the actual physical forms, or you can do them online. Doing them online can be a very quick and easy method especially if you use tax software which is readily available. Property owners should be aware that the area of taxation is complex and changes with every Fiscal year. There is a risk that landlords who undertake submission of Self Assessment tax returns may miss niche tax reliefs, such as Capital Allowances on multi-let properties.

3) What is the easiest and most efficient way to do it? The most cost-effective way is to employ a professional. Accountants are highly trained to ensure that clients receive the most up to date tax advice. They also ensure that you are aware and take advantage of any reliefs which you may be entitled to and that all transactions adhere to generally accepted accounting practices.

4) At what sort of size portfolio would you recommend the use of an accountant? I would recommend an accountant for even 1 property. Utilising the correct accounting treatment of certain property transactions could save you thousands, and that would be worth the fee alone.

5) If you had a mixture of property investments (for example standard buy to lets, HMOs, lease optioned properties) – what would be your advice? It is important, I feel, to have an accountant who specialises in property related transactions. With lease options, for example, there are issues of ownership, how to treat Capital Gains Taxation, rental income, disposal of assets etc – all of which can be dealt with by a competent accountant with specific property transaction expertise.

6) Where can people go online for advice as to best complete their return? The HMRC’s website has all of the information which anyone may need. It is, in my opinion, not the easiest to navigate, but if you persist, it’s all there:

HMRC Website for Tax Advice

However, for Capital Allowances tax relief, which applies to multi-let property owners, you can visit

HMO Tax

7) Do you have any potential tax-saving tips that readers should be made aware of when filing their return?

All Multilet & HMO owners should ensure that Plant & Machinery Capital Allowances are claimed on the qualifying assets within the communal areas of the property. Please also consider these tips:

Check your tax code – make sure that yours is right in order to avoid paying too much tax;

Investigate rebates – any of those eligible for a tax rebate are unaware of their eligibility. If you have been placed on the ‘Emergency Rate’ at any period there is a high chance that HMRC owes you money;

Use all of your allowances – most individuals will receive their personal allowance for income tax and National Insurance automatically. However, there are numerous other allowances to which you may be entitled but which you may not be claiming. For example, mileage allowances for business use of your car can reduce your tax bill significantly;

Claim Tax Credits – the Tax Credit system can sometimes appear rather opaque, with many people failing to understand what they are entitled to. HMRC currently offer around £3.7 billion of Tax Credits, much of which goes unclaimed;

Plan for IHT – Inheritance Tax is one of the most despised and potentially most expensive forms of taxation. The tiny number of individuals who make any effort to reduce their IHT burden is therefore surprising. Simple steps like making a will can drastically reduce an IHT bill, and require very little work;

Put non-earners allowances to work – if your spouse does not earn, or earns less than their personal allowance, you should consider moving any income generating assets into their ownership. Regardless of whether or they are earning, they will still qualify for their personal allowance. Making use of this could save you thousands every year;

Choose tax efficient savings – savings schemes are an excellent way to reduce your tax bill, and build a nest egg for the future. Simple steps like using up your ISA allowance can cut significant amounts off your tax liabilities. You may also wish to consider a company share scheme, which tend to be highly tax efficient and may involve discount shares;

Sort your Self Assessment – if you are a self assessment taxpayer, completing your return early can result in big savings. In the first instance, if you get your return in by the end of October HMRC will calculate your tax for you. However, if you miss the 31st January deadline, you will automatically be fined £100.

Use your pension – pension contributions are exempt from tax. This means that you can reduce your income tax bill by putting extra cash into your pension. The money will be deducted from your pre-tax income.

Hire an accountant – if your tax affairs are in any way complex, hiring a good accountant is likely to save you money. Their retainer fees can seem expensive, but a knowledgeable tax expert will pay for themselves immediately.

1) What are the most important factors that need to be taken into account when managing your property tax affairs? By far, the most important factor is to have excellent record keeping. Keep all your receipts, statements, bills, utility records, cheque stubs etc. As well as keeping these items, I recommend to have a weekly or monthly income & expenditure list – which can be done within a simple Excel spreadsheet. Have two columns with brief descriptions of the item such as: “June rental income, 123 North St.” or “Council Tax September, 345 Smith St.” Remember that even if this information is not used for the tax return yourself, your accountant is likely to charge you less (as you are saving them time by maintaining good records). Personally, I find the key is to regularly update the data. Leaving it to the end of the tax year, always results in two weeks of mayhem!

2) Is it a process that a landlord/lady can do themselves? If you feel that you can do your taxes on your own use the standard manual way with the actual physical forms, or you can do them online. Doing them online can be a very quick and easy method especially if you use tax software which is readily available. Property owners should be aware that the area of taxation is complex and changes with every Fiscal year. There is a risk that landlords who undertake submission of Self Assessment tax returns may miss niche tax reliefs, such as Capital Allowances on multi-let properties.

3) What is the easiest and most efficient way to do it? The most cost-effective way is to employ a professional. Accountants are highly trained to ensure that clients receive the most up to date tax advice. They also ensure that you are aware and take advantage of any reliefs which you may be entitled to and that all transactions adhere to generally accepted accounting practices.

4) At what sort of size portfolio would you recommend the use of an accountant? I would recommend an accountant for even 1 property. Utilising the correct accounting treatment of certain property transactions could save you thousands, and that would be worth the fee alone.

5) If you had a mixture of property investments (for example standard buy to lets, HMOs, lease optioned properties) – what would be your advice? It is important, I feel, to have an accountant who specialises in property related transactions. With lease options, for example, there are issues of ownership, how to treat Capital Gains Taxation, rental income, disposal of assets etc – all of which can be dealt with by a competent accountant with specific property transaction expertise.

6) Where can people go online for advice as to best complete their return? The HMRC’s website has all of the information which anyone may need. It is, in my opinion, not the easiest to navigate, but if you persist, it’s all there:

HMRC Website for Tax Advice

However, for Capital Allowances tax relief, which applies to multi-let property owners, you can visit

HMO Tax

7) Do you have any potential tax-saving tips that readers should be made aware of when filing their return? All Multilet & HMO owners should ensure that Plant & Machinery Capital Allowances are claimed on the qualifying assets within the communal areas of the property. Please also consider these tips:

Check your tax code – make sure that yours is right in order to avoid paying too much tax;
Investigate rebates – any of those eligible for a tax rebate are unaware of their eligibility. If you have been placed on the ‘Emergency Rate’ at any period there is a high chance that HMRC owes you money;
Use all of your allowances – most individuals will receive their personal allowance for income tax and National Insurance automatically. However, there are numerous other allowances to which you may be entitled but which you may not be claiming. For example, mileage allowances for business use of your car can reduce your tax bill significantly;
Claim Tax Credits – the Tax Credit system can sometimes appear rather opaque, with many people failing to understand what they are entitled to. HMRC currently offer around £3.7 billion of Tax Credits, much of which goes unclaimed;
Plan for IHT – Inheritance Tax is one of the most despised and potentially most expensive forms of taxation. The tiny number of individuals who make any effort to reduce their IHT burden is therefore surprising. Simple steps like making a will can drastically reduce an IHT bill, and require very little work;
Put non-earners allowances to work – if your spouse does not earn, or earns less than their personal allowance, you should consider moving any income generating assets into their ownership. Regardless of whether or they are earning, they will still qualify for their personal allowance. Making use of this could save you thousands every year;
Choose tax efficient savings – savings schemes are an excellent way to reduce your tax bill, and build a nest egg for the future. Simple steps like using up your ISA allowance can cut significant amounts off your tax liabilities. You may also wish to consider a company share scheme, which tend to be highly tax efficient and may involve discount shares;
Sort your Self Assessment – if you are a self assessment taxpayer, completing your return early can result in big savings. In the first instance, if you get your return in by the end of October HMRC will calculate your tax for you. However, if you miss the 31st January deadline, you will automatically be fined £100.
Use your pension – pension contributions are exempt from tax. This means that you can reduce your income tax bill by putting extra cash into your pension. The money will be deducted from your pre-tax income.
Hire an accountant – if your tax affairs are in any way complex, hiring a good accountant is likely to save you money. Their retainer fees can seem expensive, but a knowledgeable tax expert will pay for themselves immediately.

Arthur Kemp – Exact Business Services Ltd – HMO Tax Consultants – www.hmotax.co.uk – T: 01733 248 706 – M: 07595 398 781

Share and Enjoy:

Tags: Capital Gains Tax, CGT, disposal of assets, emergency tax, Fiscal, HMO taxation, HMRC, Income Tax, Inheritance Tax, ISA allowance, landlord taxation, lease option taxation, managing property tax affairs, National Insurance, non-earners allowances, pension contributions, Plant & Machinery Capital Allowances, property tax, property tax accountant, record keeping, rental income, Self Assessment, Tax Credits, tax efficient savings, tax returrns, Travel mileage allowance
Posted in Business Management, Property Taxation | 2 Comments »

Joint Ventures in Property 2010

January 20th, 2010

1 Comment

Many readers would remember the interview we did with Roberta Ward in 2009 where we discussed the various ins and outs of undertaking joint ventured property investments. As the last year has seen many changes with regards to how property investors operate in the market place, we thought it would be a good idea to gain some new insights into joint-venturing and ask one of the UK’s genuine property experts her thoughts on the market moving forward.

1) So, what have you been up to over the last year?

Last year my partners and I took a step back from buying property, as we felt the market was too volatile to make rational decisions at the start of the year. It was a transition period for our business. We had started looking for other income streams connected to and outside of the property market to make our base more solid, and to create more revenue to invest with. We also seeked further finance opportunities which gave us the opportunity to review all our current properties and how they were performing so as to apply changes where necessary. Regular reviews are essential in property investing.

Yes, JVs work in any market. Like anything else, you have to fit the JV around the deal. People with bad credit can build portfolios using JV partners names on the mortgages along with 2nd charges etc – ones who may have a better rating than themselves perhaps. Trust, and a good legal document/ advice are the essentials for any partnership.

3) Would many of the principles you highlighted still stand or has much changed in the last year?

I personally don’t think much has changed on the JV front. The difference is the market, agents are forcing prices upwards due to lack of supply. Valuations in this market may be unstable and prone to dropping when the interest rates change, or the repos which banks are holding are released, or even with the more stringent rules the government want to apply to landlords. Many will get fed up and dump their properties if the market is high enough in their area, potentially causing a drop in price as availability is increased.

4) Have there been any other strategies that you have seen emerge that would be of interest to our readers?

Well there was the mad dash towards doing option agreements for those who suddenly could not finance deals and got pulled in to the NMD way of doing things. Effectively many tried to do the same type of deals via options instead of finance. Not for the faint hearted or inexperienced property investor in my own opinion. Lots can go wrong and you need proper legal advice – even the lawyers involved are constantly tweaking the format of the documents which make you wonder about previous earlier deals. I saw one deal on a forum recently which I analysed on my blog here: http://mypropertymentor.co.uk/blog/2010/01/analysis-lease-option-rip-off-deal/

5) What would be some joint venture tips that you would suggest to someone who is starting out in property in 2010?

This kind of depends on how quickly you want to achieve something. People will not trust you if you are just starting in property, so it depends what you can bring to the table. You will need to prove you have either experience, or money to invest or you must be willing to share the work in some way. Another idea is that you could attempt to source deals for people instead or give your time freely to learn from an experienced investor, this could lead to doing deals a bit later on. If you would like to know more specific details of how to do joint ventures I have an ebook available from my web site: My Property Mentor. www.mypropertymentor.co.uk

6) In many ways, using a lease option with a homeowner is a form of joint-venturing – what are your thoughts on undertaking these types of transaction?

Yes, but in a JV both partners are in it for profit and working towards common goals. In my experience, homeowners do not understand options or what you are really doing with their property. Often you may be their way out of a mess, which makes them vulnerable and prone to being taken advantage of. I have a couple of blog posts in which I write about options in more detail:

http://mypropertymentor.co.uk/blog/2009/11/lease-options-regulation-in-sight/

http://mypropertymentor.co.uk/blog/2009/09/finance-versus-options-which-would-you-choose/

http://mypropertymentor.co.uk/blog/2009/09/the-options-band-waggon-has-rolled-in-to-town/

7) Can you re-iterate some of the most important factors, perhaps with a few to the year ahead, of what people should be looking for in a joint venture partner?

A good agreement with Trust Deeds; common goals long and short term if necessary; secure exit strategies for the deals; big discounts to take account of market fluctuations are the main ones.

8)What are your thoughts on using commercial lending to finance residential property investments – are there any inherent risks in taking this route?

Commercial lending is a complex issue. Basically, commercial lending is generally available if you have property within a portfolio with equity. In many ways it is even tighter than regular BTL lending and you would typically see the lender put 2nd charges across the whole of your portfolio and then lend you up to 60% of its total equity value. For most BTL investors this is ruled out as their portfolios are heavily leveraged due to the NMD fiasco of building a portfolio. In many cases, you would be better off with private equity lending instead as the charges would be temporary and on individual property. Or you could look at bridging initially perhaps, depends on the deal of course.

What are you plans for your own property business and your events?

This year we are launching some very exciting things, which are still under wraps right now. We have two potential projects – one abroad, which we are seeking finance on at present. The foreign one is a renovation – so a REAL challenge that one! The other is a local investor property we are considering taking on as a multi-let. This year I intend to grow the networking side of the business. We are also moving into new circles and moving away from the “Show biz Landlords” (as a friend of mine calls the networking circuit speakers!) into a more up market development crowd – as that’s where our heart lies. I see this year as a year of planned growth where we build on the foundations of last year’s ground work.

How can people find out more about your up-and-coming events in Chelmsford?

Our networking events are held on the last Tuesday of every month and all details are posted on our web site in the networking pages: www.mypropertymentor.co.uk. This month we are talking about future planning. This will involve tax and retirement planning for your long term exit of the property arena. Our regular speakers cover a wide range of topics. I can honestly say that networking is the most important thing I have done in the last few years. Without it you are prone to get stuck in one way of thinking. Networking creates opportunity and creative thought which will ultimately move you forward at a much faster pace than going it alone.

Many readers would remember the interview we did with Roberta Ward in 2009 where we discussed the various ins and outs of undertaking joint ventured property investments. As the last year has seen many changes with regards to how property investors / landlords operate in the market place, we thought it would be a good idea to gain some new insights into joint-venturing and ask one of the UK’s most genuine and frankly-speaking property experts her thoughts on the market moving forward…

1) So, what have you been up to over the last year? Last year my partners and I took a step back from buying property as we felt the market was too volatile to make rational decisions at the start of the year. It was a transition period for our business. We had started looking for other income streams connected to and outside of the property market to make our base more solid, and to create more revenue to invest with. We also seeked further finance opportunities which gave us the opportunity to review all our current properties and how they were performing so as to apply changes where necessary. Regular reviews are essential in property investing.

2) We originally spoke about undertaking joint ventures as an effective strategy for those were perhaps finding investing by themselves difficult, as well as those who wanted to share risk. As we start 2010, does a joint venturing approach to residential property still work? Yes, JVs work in any market. Like anything else, you have to fit the JV around the deal. People with bad credit can build portfolios using JV partners names on the mortgages along with 2nd charges etc. – ones who may have a better rating than themselves perhaps. Trust, and a good legal document/ advice are the essentials for any partnership.

3) Would many of the principles you highlighted still stand or has much changed in the last year? I personally don’t think much has changed on the JV front. The difference is the market, agents are forcing prices upwards due to lack of supply. Valuations in this market may be unstable and prone to dropping when the interest rates change; or the repos which banks are holding are released; or even with the more stringent rules the government want to apply to landlords. Many will get fed up and dump their properties if the market is high enough in their area, potentially causing a drop in price as availability is increased.

4) Have there been any other strategies that you have seen emerge that would be of interest to our readers? Well there was the mad dash towards doing option agreements for those who suddenly could not finance deals and got pulled in to the NMD way of doing things. Effectively many tried to do the same type of deals via options instead of finance. Not for the faint hearted or inexperienced property investor in my own opinion. Lots can go wrong and you need proper legal advice – even the lawyers involved are constantly tweaking the format of the documents which make you wonder about previous earlier deals. I saw one lease options deal on a forum recently which I analysed on my blog here.

5) What would be some joint venture tips that you would suggest to someone who is starting out in property in 2010? This kind of depends on how quickly you want to achieve something. People will not trust you if you are just starting in property, so it depends what you can bring to the table. You will need to prove you have either experience, money to invest or you must be willing to share the work in some way. Another idea is that you could attempt to source deals for people instead or give your time freely to learn from an experienced investor, this could lead to doing deals a bit later on. If you would like to know more specific details of how to do joint ventures I have an ebook available from my web site: My Property Mentor.

6) In many ways, using a lease option with a homeowner is a form of joint-venturing – what are your thoughts on undertaking these types of transaction? Yes, but in a JV both partners are in it for profit and working towards common goals. In my experience, homeowners do not understand options or what you are really doing with their property. Often you may be their way out of a mess, which makes them vulnerable and prone to being taken advantage of. I have a few blog posts in which I write about options in more detail:

7) Can you re-iterate some of the most important factors, perhaps with a few to the year ahead, of what people should be looking for in a joint venture partner? A good agreement with Trust Deeds; common goals long and short term if necessary; secure exit strategies for the deals; big discounts to take account of market fluctuations are the main ones.

8)What are your thoughts on using commercial lending to finance residential property investments – are there any inherent risks in taking this route? Commercial lending is a complex issue. Is is essentially only available if you have property within a portfolio with equity. In many ways it is even tighter than regular BTL lending and you would typically see the lender put second charges across the whole of your portfolio and then lend you up to 60% of its total equity value. For most BTL investors this is ruled out as their portfolios are heavily leveraged due to the NMD fiasco of building a portfolio. In many cases, you would be better off with private equity lending instead as the charges would be temporary and on individual property. Or you could look at bridging initially perhaps, all depends on the deal of course.

9) What are you plans for your own property business and your events? This year we are launching some very exciting things, which are still under wraps right now. We have two potential projects – one abroad, which we are seeking finance on at present. The foreign one is a renovation – so a REAL challenge that one! The other is a local investor property we are considering taking on as a multi-let. This year I intend to grow the networking side of the business. We are also moving into new circles and moving away from the “Show biz Landlords” (as a friend of mine calls the networking circuit speakers!) into a more up market development crowd – as that’s where our heart lies. I see this year as a year of planned growth where we build on the foundations of last year’s ground work.

10) How can people find out more about your up-and-coming events in Chelmsford? Our networking events are held on the last Tuesday of every month and all details are posted on our web site in the networking pages. This month we are talking about tax and retirement planning for your long term exit of the property arena. Our regular speakers cover a wide range of topics. I can honestly say that networking is the most important thing I have done in the last few years. Networking creates opportunity and creative thought which will ultimately move you forward at a much faster pace than going it alone. Without it you are prone to get stuck in one way of thinking.

Share and Enjoy:

Tags: big discounts, Chelmsford property networking, commercial lending, Essex property networking, exit strategy, Joint Ventures in Property, Lease Options, No Money Down, retirement planning, Roberta Ward, tax planning, Trust Deeds
Posted in Business Management, Joint Ventures, Tips for Property Investing | 1 Comment »

Property Investor Social Networking Site

January 13th, 2010

No Comments

1) Can you tell us a bit about yourself and your background in the property industry?

My name is David Duckworth I have been interested in business and investing since being a teenager. Between the age of 16 – 28 I started and ran five different businesses, two IT companies, a pub, an advertising company and printers. I’ve been bankrupt once, and been ripped off majorly once too resulting in me losing everything and ending up in a homeless hostel in Brussels (long story), but have also ran a company that makes 6 figure profits, and am lucky enough now that I can afford to pay myself a healthy wage. Not bad for someone who at an employment fair at school was asked if he had applied at McDonalds yet.

Currently I own an IT security consultancy and printers, and I have a healthy interest in property.

Since then I have bought and sold, and currently just have a small portfolio, which I’m looking to open the throttle on this year, hopefully as lending gets a little more easier and I get my head round lease options.

But I tend to wait for the gems rather than buying anything that comes my way. I also never draw down from properties either. There have been a few guys I know that over the last year or so have lost quite a lot because their property portfolio has been to highly geared.

I should also mention that I am in no way a ‘property expert’ and certainly don’t claim to be one. Maybe one day I’ll have a legitimate claim to such title but for now I’m happy to be learning more about what it takes to make it in property.

2) What is ‘Property Networker’?

PropertyNetworker.com is a social networking site for property investors. Property is very much a people business, the more you network and put yourself in that flow of information, the more successful you will be.

3) Why did you choose to create ‘Property Networker’?

As a budding investor I used to spend loads of time trawling the internet; reading blogs, forums, hunting for deals on lead sites and ready made deal sites. I used to network on Facebook and try to find local property meetings. This all became pretty much a full time job. I thought how great it would be to find everything in one place, under one roof if you like, and so the idea for PropertyNetworker.com was born.

4) There are a number of ‘property networking’ sites on the web – some which have more success than others. Why do you feel the site is particularly unique?

I suppose the thing that sets it a part is the personal touch that helps YOUR property business progress… not just mine.

As I mentioned, I don’t claim to be a property expert. In fact I’m a novice. I’m not trying to sell you a BMV strategy; I’m not trying to get you to sign up to a 6 week course. I just provide a place for people to network, a stage if you like, all the content is user submitted.

5) Can you talk through some of the main features of the site?

And of course the other big part of PropertyNetworker.com is the newsletters. Each member receives a weekly email, which has all the up and coming events for the week, leads posted on forums and all kinds of things to do with property. Also if you run an event you get a banner advert on the front page and this is all thrown in…

6) What are you plans for the site in 2010 and beyond?

A site like PropertyNetworker.com only grows in strength through its member numbers and its members participation. I’m going to spend the year networking and promoting the site, and hopefully by the end of the year I’ll be able to boast a busy vibrant networking site, one that’s on every investors agenda.

7) How can people become a part of the site?

Easy, just go to http://www.propertynetworker.com and click on ‘Signup today’ Fill out your details and you’re away.. it only takes a few minutes.Jbsjbs

PS Investor Services have recently come across a new forum called the ‘The Property Networker‘ which we wanted to share with our subscribers. This site grabbed our attention as it serves not only to act as an online meeting point for property investors but also provides members access to blog posts, events notices, some excellent video recordings and much more. Please see an interview with founder David Duckworth below:

1) Can you tell us a bit about yourself and your background in the property industry?

I have been interested in business and investing since being a teenager. Between the age of 16 – 28 I started and ran five different businesses, two IT companies, a pub, an advertising company and printers. I’ve been bankrupt once, and been ripped off majorly once too resulting in me losing everything and ending up in a homeless hostel in Brussels (long story), but have also ran a company that makes 6 figure profits, and am lucky enough now that I can afford to pay myself a healthy wage. Not bad for someone who at an employment fair at school was asked if he had applied at McDonalds yet! Currently I own an IT security consultancy and printers, and I have a healthy interest in property.

I guess my journey in property started in 2007 when I attended a conference hosted by Parmdeep Vadesha & Hanif Khan. I was asked to stand up and tell everyone why I wanted to get into property. I literally just said ‘I have no idea – I just think I ought to.’ Since then I have bought and sold, and currently just have a small portfolio, which I’m looking to open the throttle on this year, hopefully as lending gets a little more easier and I get my head round lease options. But I tend to wait for the gems rather than buying anything that comes my way. I also never draw down from properties either. There have been a few guys I know that over the last year or so who have lost quite a lot because their property portfolio has been too highly geared. I should also mention that I am in no way a ‘property expert’ and certainly don’t claim to be one. Maybe one day I’ll have a legitimate claim to such title but for now I’m happy to be learning more about what it takes to make it in property.

2) What is ‘Property Networker’?

3) Why did you choose to create ‘Property Networker’?

As a budding investor I used to spend loads of time trawling the internet, reading blogs, forums, hunting for deals on lead sites and ready made deal sites. I used to network on Facebook and try to find local property meetings. This all became pretty much a full time job. I thought how great it would be to find everything in one place, under one roof if you like, and so the idea for PropertyNetworker.com was born.

4) There are a number of ‘property networking’ sites on the web – some which have more success than others. Why do you feel the site is particularly unique?

I suppose the thing that sets it a part is the personal touch that helps YOUR property business progress… not just mine. As I mentioned, I don’t claim to be a property expert. In fact, I’m a novice. I’m not trying to sell you a BMV strategy nor am I trying to get you to sign up to a 6 week course. I just provide a place for people to network, a stage if you like, all the content is user submitted.

5) Can you talk through some of the main features of the site?

The main platform of PropertyNetworker.com is of course the social networking platform, where you can create a profile, create events and form groups. You can network with other investors on the site and invite them to your networking meetings. This coupled with investor forums and YouTube video links. I’m hoping PropertyNetworker.com will become the only place on the net you’ll need to visit to become a successful investor. And of course the other big part of PropertyNetworker.com is the newsletters. Each member receives a weekly email, which has all the up and coming events for the week, leads posted on forums and all kinds of things to do with property. Also if you run an event you get a banner advert on the front page and this is all thrown in…

6) What are you plans for the site in 2010 and beyond?

7) How can people become a part of the site?

Easy, just go to PropertyNetworker.com and click on ‘Signup today’ – fill out your details and you’re away.. it only takes a few minutes.

Share and Enjoy:

Tags: david duckworth, Lease Options, networker, property, property investment blog, property investment due diligence, property investment forum, property investment YouTube, property investor videos, property portfolio
Posted in Business Management, Tips for Property Investing | No Comments »

January Property Investor Factsheet

January 8th, 2010

No Comments

January 2010 Factsheet

Welcome to the new year and we hope you had a good break. Please see the first factsheet of the year by clicking on the link above.

Many of you would have read our 2010 Property Investors Report which discussed the predictions that a number of house prices indices were making – most of which pointed to further dips to be expected. Indeed, a start-of year Financial Times survey pointed to 55 of 70 of Britain’s leading economists believing that house prices were still too high.

Nevertheless, home lending has continued to increase with Bank of England statistics indicating that the number of mortgage approvals has more than doubled in the last 12 months (net lending has increased for the third month in a row to £1.46 billion, a level last seen in February). Other positive news shows that unemployment has been decreasing to 2,093 people being made redundant every day in December (compared to 2,247 in November). Buy to let mortgage rates remain fairly low although it is predicted that high LTV products will not appear on the market any time soon.

To gain direct unlimited access to the factsheets (as well as the other free guides, videos, landlord tools etc.) please ensure you are registered to the Property Investor Hub by clicking here.

January 2010 Factsheet

Please see the first factsheet of the year by clicking on the link above.

To gain direct unlimited access to the factsheets (as well as the other free guides, videos, landlord tools etc.) please ensure you are registered to the Property Investor Hub by clicking here.

Share and Enjoy:

Tags: bank base rate, bbr, debt levels, house prices, january 2010, latest buy to let mortgages, mortgage approvals, Property Investor Factsheet, repossessions, unemployment
Posted in Economics for the Property Investor, Property Investor Factsheet | No Comments »

Search

Categories

Recent Posts

Pages

Archives

Archive for January, 2010

The Truth About Sandwich Lease Options

Taxation When Doing Lease Options Deals

Property Investor / Landlord Tax Management

Joint Ventures in Property 2010

Property Investor Social Networking Site

January Property Investor Factsheet

Join our email list