Merseyside Property Sales November 2017
Mersey Region is on the up
How to stop HMRC from reaching further into your pockets.
There is a theory that as London property prices have stalled and in some instances fallen and that the regions are profiting from their loss. In fairness this has been a long time coming because investment decisions taken in London and the South East have been taken for very different reasons to investors in the Mersey region. Investors in the South counted on a gain and in many instances funded their bank lending from other income in other words prior to s24 (mortgage interest relief restriction), they were happy to report a loss on property income as a trade off for the massive gain to come.
For investors that are income tax payers down south that strategy has had to change as the risk/reward relationship has become increasingly skewed on the risk side as property prices have stalled. Whereas investors in the Mersey region have had, that is up in till fairly recently, a different investment strategy based solely on yield. Mortgage Interest Relief restriction (s24) will impact those decisions, and in which I shall draw some conclusions for you a little later within the report however, go into a local bank, speak to a local agent or mortgage broker and they will tell you southern investors are looking for deals here in the Mersey region. Stoking property price increases. Landlords are somewhat still trying to make up the difference between values today and their 2007 values but at last we find ourselves moving in the right direction and all thanks to our southern brethren.
Here some interesting data from Liverpool City Council ending March 16 - 'Average house prices' - how well is your property doing? Since then you will be looking at an average 5% increase.
Restriction on mortgage interest Relief.
What does this mean?
Income tax payers will pay tax on turnover and not profit.
Should I be worried?
If you are currently a basic rate tax payer you will likely be pushed into the higher rate so yes.
What can I do about it?
Well basically five things-:
1/ Sell up now - don't prevaricate and wait till you get your tax bill as come January 19 there will be a glut of properties and a fire sale. Do you want a FREE VALUATION today click this link...
2/ Elect to do nothing - many people bury their head in the sand because they don't know what to do. It's not that their making a conscious decision to do nothing it's just that they think they can't do right for doing wrong so better to do nothing!
3/ Incorporate - corporations are not income tax payers so presently don't suffer from the restriction. Sounds good but is it? It's very costly having to remortgage, loans are more expensive, double taxation applies, mortgage restrictions apply on the Extraction of funds and the killer is the government could change the rules once you have paid all the costs of incorporation.
4/ s162 Incorporation Relief - the above risks still apply - claimable by rolling the gains over but not the SDLT. There are rules but essentially your letting business should have been run as business and in which you expended 19 hours on average per week. FA03, Sch15 allows Incorporation with no SDLT as long as you have operated a business partnership for three years. Many artificial structures are being set up in the hope they will qualify. The risks are that after making your decision HMRC say you don't qualify and tax is not retrospective once you make the decision you KEEP IT.
5/ The fifth is highly recommended as the structure is not an artificial structure and it's as old as Magna Carta it's self in its application. Now I understand you maybe concerned that HMRC could change the rules which is true and it's the risk we all carry everyday we are in business. However, combining natural and artificial personalities, and separating ownership from enjoyment from control, to best effect insofar as the law allows, has been around since before the Crusades and is reflected in Magna Carta. In fact, the ability to have separate legal personalities and to legally separate ownership from enjoyment from control, is a major tenet of English law whose removal would have major consequences for the populous let alone the 436,000 partnerships and 1.6 million limited companies that as part of the larger business community as a whole employ over 25 million people and turn over in excess of £3.5 trillion (2015 figures).
That’s not to say administrations of all political colours won’t try to put their hand as far in to your pocket as the law allows and tinker with the rules to stack the odds in the house’s favour (it’s called being in business and that’s what UK PLC is). They will! But as in Inland Revenue Commissioners v. Duke of Westminster  A.C. 1; 19 TC 490... “Every man is entitled if he can to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be”.
All in all, whilst change is in itself a constant, the risk of it must be put into perspective; and staying as you are or choosing to incorporate will simply leave you exposed. In which regard, you should please note that the hybrid arrangement we recommend is NOT a notifiable tax avoidance scheme as defined under DOTAS or the General Anti-Abuse Rule (GAAR), and is being used by numerous property and other businesses as a legitimate framework for growth.
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