Thursday, 20 October 2016

Airline immigration case just the ticket for landlords

While the worlds of lettings and budget air travel might appear disparate, landlords might want to show thanks to Ryanair after it successfully challenged a recent legal claim over an immigration dispute.

When the Home Office imposed a penalty on the budget airline after it was found that two Albanians had illegally entered the UK on a flight from Spain using forged Greek passports, Ryanair went to the Central London County Court to state a challenge.

Spanish officials had failed to notice the forgeries, but UK Border Force officers were more vigilant. As a result, the Home Office penalised Ryanair £2,000 for each Albanian, but the airline contested the charge.

Parallels are clearly drawn for landlords under the Right to Rent scheme, which stipulates that documentation has to be checked to ensure that potential tenants and other occupiers of a property aged 18 or over have a legal right to be here.

The Code of Practice that accompanied the implementation of the Immigration Act 2014, set out in the Immigration (Residential Accommodation) (Prescribed Requirements and Codes of Practice) Order 2014, says that landlords “will not be penalised, if, having taken all reasonable steps to check a document’s validity, they are fooled by a good forgery which appears to be genuine.”

The difficulty comes in knowing what a good forgery is, but the Ryanair case seems to give at least a clue as to a definition.

Two immigration officers gave statements that missing security elements in the passports used by the Albanians were in their view “reasonably apparent” to a member of airline staff and that they should have been spotted. However, other immigration officers in similar cases had found that the forgeries were not “reasonably apparent”. The Court took the view that missing security elements that are relatively hard to find, even for trained professionals, would not be reasonably apparent to busy airline staff, even though they have an annual refresher course.

Lisa Simon, 
Partner Head of Residential Lettings
T: 020 7518 3234 

EPCs 10 years on – time to reassess their impact?

It’s a decade since residential properties in the UK were first required to have a ten year Energy Performance Certificate (EPC) before they could be sold or let. As the ten year anniversary approaches, the time has come for the early starters to be reassessed.

Originally part of the Home Information Pack (HIP), loved by a few and loathed by many - but which would have been useful if implemented as originally intended, the EPC survived when the HIP requirement was abandoned in 2010.

At first regarded as a bureaucratic irritation rather than a necessity, the EPC gained more traction recently when the introduction of Minimum Energy Efficiency Standards (MEES) meant that from April 2018 it will be difficult, but not impossible as some suggest, to let a property with an Energy Efficiency Standard below Band E on its EPC. There are exemptions that can be registered, but these are subject to re-application every five years, and it is by no means certain that this will continue ad infinitum. Indeed, it’s expected that the rules will become tougher and eventually exclude Band E properties.

With that in mind, it could be beneficial to review the EPC for your property even if you are not yet required to replace the original purchased 10 years ago. In fact, some landlords are relying on an EPC that exists from when they purchased the property, and therefore was provided by the vendor rather than themselves.

Where a property is Band F or G, but also for those with a low score in Band E, having a new EPC assessment could make the difference between 10 years of worry-free letting and the stress of not knowing whether an exemption granted in time for April 2018 will be renewed in 2023.

The energy assessor who provides the EPC will check for items such as double glazing, boiler efficiency, radiators, and insulation for the hot water tank, walls, and loft. The results are fed into a software program that produces a figure for the EPC, which in turn determines the banding in some instances. The assessor can override the program if there’s visual or written evidence that standards are higher than the software assumes.

Where you are borrowing to fund the purchase of a lettings property, your lender may want confirmation of its energy efficiency standards, especially where the current banding could make it borderline in the future and therefore bring a possible diminution in its asset value. Therefore, taking care of what was once regarded as a merely administrative necessity could pay dividends.

Certain classes of building are exempt from the need for an EPC. As far as residential landlords are concerned, the principal category concerns those that are officially listed as of historic interest.

From April this year, tenants have had the right to ask their landlords to approve their installation of energy efficiency measures. Originally this would have fallen under the Green Deal - a scheme that already had drawbacks before its funding was withdrawn because of low take-up.

Improvements were supposed to be funded through energy bills applicable to a property, provided the benefits of the improvement outweighed the cost of making them.

But it’s much better to make these improvements independently, as part of an investment in your lettings property, rather than using a scheme that allows tenants to take charge, as this may ultimately restrict which energy company you can use in the future, as not all energy providers are involved. While this may seem insignificant, consumers are growing more energy aware and may resent having their opportunities to switch curtailed.

My recommendation is that where tenants ask to carry out an energy survey, you allow it to go ahead, but then consider whether or not it’s to your advantage to implement the improvements yourself so you retain control. It may also be that the work can be completed at lower cost than the tenant’s chosen contractor offers.

Lisa Simon, 
Partner Head of Residential Lettings
T: 020 7518 3234 

Monday, 10 October 2016

Upturn in milk prices

Dairy farmers flocked to the Dairy Show held at the Bath and West Showground on 5th October and I was struck by how positive many of the attendees were despite the very difficult year that many have experienced.

This generally positive attitude is perhaps a reflection of the recent upturn in milk prices and the hope that there will be further more significant increases to come. However the picture painted by farm accountants Old Mill appears to be rather more gloomy than the mood at the show would indicate.

Based on analysis of both Old Mill and the Farm Consultancy Group clients’ accounts this showed that on average dairy farmers lost 2.71p/litre in 2015/16 and are set to lose a worrying 2.81p/litre in 2016/17.  However these figures exclude non-milk income such as calf and cow sales and when these are included this produces small profits of 0.99p/litre and 1.08p/litre respectively.

Even so, these are not huge profits but although they are average figures and what always astounds me is the huge variation in performance between the top and bottom 25% of dairy businesses and this was once again borne out by Old Mill’s analysis.

Their figures showed that production costs among the lower quartile were a hefty 33.87p/litre, against 22.84p/litre in the top 25%. The bottom 25% also received 2.29p/litre less for their milk, at 25.01p/litre. This meant they made a loss of 5.65p/litre in 2015/16 – including non-milk income - compared to the top quartile’s average profit of 8.75p/litre.

Andrew Vickery, head of rural services at Old Mill, commented that, “It’s encouraging to see that, even in these tough times, the UK’s top dairy farmers are still managing to make a profit,”  but he went on to add, “all producers have looked hard at their cost base and found ways to reduce expenditure. However, while many have improved efficiencies, there is now very little meat left on the bones for any further cost reductions.”

As a result, following a prolonged period of low milk prices, cash flow is a significant issue for many dairy farmers and so now more than ever it is important to look forward and plan ahead.  In this context having a clear understanding of one’s cost of production is vital according to Phil Cooper from the Farm Consultancy Group.

Phil commented, “Improved dairy commodity values are now starting to filter through to farm-gate milk values, so producers need to make sure their business is in the best possible shape going forward, he adds. Don’t make drastic changes in times of uncertainty, but do plan ahead. Take professional advice and understand your costs of production, so that when you make a decision to change you’ll know it’s the right one.”

So, after a challenging year it appears most dairy farmers are keen to hang on to fight another day which demonstrates to me the resilience of this very important part of our farming community here in the south west.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381

Tuesday, 27 September 2016

Farm borrowing in the UK

Farm borrowing in the UK has doubled in the last decade and at the end of October 2015 stood at £17.7bn but with interest rates at historically low levels, is now the moment to consider fixing rates for at least some of your long term borrowing?

This is a notoriously difficult question to answer and one on which I am not qualified to advise but what is for certain is that the long term fixed rates which are currently on offer are well below anything I have seen in my 25 year career.

Having said that, those borrowers who have stuck with variable rate loans over the last 6 or 7 years will have generally fared better than those on fixed rate loans. This is because base rates have remained fixed at 0.5 % since 2009 then fallen to 0.25% in the wake of the BREXIT referendum and while there is still potential that rates could fall further one may question why one should consider fixing one’s borrowing at all.

Well, the primary advantage of fixing rates is that you “know where you are” in terms of repayments over the fixed term of the loan. To some borrowers this is a great comfort for budgeting purposes and it outweighs the higher interest rates that are usually charged for fixed rather than variable rate loans at any one time.

However, one cannot help feeling that if a business cannot afford the low rates that are currently being offered on fixed rate loans then the business should perhaps not be borrowing the money in the first place.

Indeed it seems we are in uncharted economic waters and with interest rates and inflation remaining low, this means that the value of any money that is borrowed today will not be eroded in real terms by the effects of inflation as it was in the 1970s and 80s for example. Therefore currently, it is not so much the interest payments but the capital repayments that represent the most significant element of repaying one’s debt.

But, this era of low interest rates and low inflation may not last forever and one may rue the day that one did not take advantage of the long term fixed rates currently on offer. 

Therefore now maybe a good moment to consult your financial advisor to see what offers are out there, whether that be borrowing from one of the High Street Banks or specialist agricultural lending institutions such as the Agricultural Mortgage Corporation.

Finally whatever decision you do make you must be sure to understand the terms of your loan and in particular where fixed rate loans are concerned you need to appreciate the potential redemption charges that may apply if you want to repay a loan early.

James Stephen MRICS FAAV
Rural Practice Chartered Surveyor, Wells

T: 01749 683381

All shapes and sizes

When is a corridor not a corridor?  When it’s an arc. What’s the difference between a cluster and a hub? Nothing material.

The terminology used to characterise what’s going on in any one area of our eastern region serves only as useful shorthand. What matters is what is actually going on inside this corridor, arc or even valley. And the past summer has seen some action in this regard.

The London-Stansted-Cambridge Consortium has been focusing on how the devolution of powers could contribute to pumping-up and serving the growth potential of this corridor to and from London in the coming 20 years.

The London School of Economics (LSE), in suggesting a serious review of the Green Belt around London, referenced the London-Stansted-Cambridge corridor as a pilot for the LSE’s idea of complementing growth corridors with green ‘wedges’ as part of a new view of the Metropolitan Green Belt.

Meanwhile the National Infrastructure Commission (NIC) – which was launched last November – sees a corridor of growth between Cambridge, Milton Keynes and ‘the Other Place’: Oxford.  With a focus on the disjointed road and rail connections between these three key locations, the NIC is charged with recommending improvements and solutions that will assist in supercharging transport links to reconcile the two old and the one new city.

Taking Cambridge alone, the ‘growth but where?’ debate has continued over the summer – and will doubtless do so well in to the coming if, somewhat stalled, autumn season.  The City Deal has been considering how best we can transport the current and future population of Cambridge through and around its historical, geographic boundaries.

All these august bodies are taking a strategic view for future growth. Meanwhile, over the summer, growth is actually going on with new development either rising up out of the ground or taking firmer shape through the planning process.

A round-up of summer site action reveals housing as key to unlocking support for developments on a number of projects.

Jesus College’s proposal for a new business park ‘Cambridge South’, on the city’s southern fringe by the M11 motorway, includes a significant housing element.

A new sporting village in Trumpington – promoted and proposed by Grosvenor Estates - includes plans for 520 new homes, of which over half could be built in the coming five years.

Plans for the re-purposing of Waterbeach barracks as the basis for a new settlement - on the same lines as Northstowe - have moved a step forward over the summer.  Homes for occupation as early as 2019 are being mooted by the promoting developer, Urban & Civic. 

Meanwhile over at master developer Gallagher Estates’s Northstowe, housebuilder Bloor is on schedule for completions on the first phase of brand new homes in early spring 2017.   The school building at Northstowe has had life breathed in to it this autumn term by primary school pupils from nearby Longstanton whose own school is being extended and renovated to cope with a growing roll-call in the catchment area.

And, as schools returned, Brookgate revealed its plans for homes as part of a mixed use’CB4’ development to complement the new railway station at Cambridge North.

Perhaps the biggest of all the summer developments front – although without a residential housing element - was the granting of outline planning consent of the second phase of 23 acres at the Cambridge Biomedical Campus.

Call it a cluster a hub, an arc or a corridor, this summer has seen the next chapter in the history of this ancient city and its sphere of influence take shape.

Will Mooney MRICS

Commercial, Cambridge

Suffolk’s highest HNW revealed...

High net worth individuals – known by the acronymn HNWs – are coveted by those companies with something to sell in the retail, professional or financial services sectors, including property agents.

HNWs are not only attractive for their wealth but for the influence they wield in setting trends and the cultural values of our times.  It’s accepted in our consumer society that HNWs set a tone and lifestyle to which the rest of us non-HNWs are encouraged to admire and aspire.

How fortunate then are we in Suffolk that one of our most stellar HNWs is so off the scale that mere mortals cannot ever attain his lifestyle and achievements because it’s a horse!  He’s champion racehorse and super-stud stallion, Frankel.

Setting aside phenomenal achievements and earnings for Juddmonte Farms on the turf during Frankel’s illustrious racing career, in retirement the eight-and-a-half year old stallion is, indeed, a most coveted creature.

Worth around £12.5 million per annum, Frankel is Suffolk’s highest Horse NW. His fee at standing is circa £125,000 per mare and he’s covered about a 100 since his time at stud.  With intercontinental progeny winning races presently Frankel’s ‘performance’ fees can only rise next year –that’s without the anticipated achievements of his southern hemisphere offspring whose racing season is yet to play out.

Frankel puts the Horse in HNW when it comes to Suffolk. There’s fun in such flippancy and word play, but the influence of Newmarket in our county’s wealth and prominence on the global stage is seriously undeniable.  We all benefit from that, whether or not we consider ourselves of the “horsey-set”.

Newmarket is the home of the international horseracing industry. Without it, Suffolk would be the poorer both culturally and in cold, hard cash terms. Newmarket’s horseracing industry makes an economic contribution of £208m to the local economy and 8,500 jobs are linked to the industry in the area (source: Newmarket Horseracing Industry by SQW, September 2015).

Horseracing, as a sport, is second only to football in the UK. While Cheshire is home to Premier League footballers of both Manchester clubs in modern times, Suffolk has been home to the Sport of Kings since the 17th Century.

As the county hosting an über modern industry of global investment Suffolk commands a unique position.  Much like the revamped National Heritage Centre for Horseracing and Sporting Art that relaunched in Open Newmarket Weekend in the middle of this month, our heritage attracts attention.  Yet like Jilly Cooper’s latest novel “Mount!” - based on the racing and stud industry - Suffolk’s a best seller. And there’s something so amusingly typical of our county’s unique charm that our highest earner has four legs as opposed to two: fabulous Frankel – our highest Horsey Net Worth!

Caroline Edwards
Residential Sales, Long Melford

T: 01787 888622

Wednesday, 14 September 2016

A Clearer View - September edition

Since the government implemented its Stamp Duty Land Tax ('SDLT') reforms in April of this year, applying an additional 3% levy to buy-to-let ('BTL') properties, many landlords are scrutinising their portfolios to ensure that their investments are maximised.

Navigating SDLT reforms, however, is a sensitive and complex manoeuvre, and often calls for expert advice. In this edition of Clearer View, we have invited the Tax Team at Price Bailey Property to share key advice for buy-to-let investors.

Company ownership for buy to let properties
Many of the country’s landlords are starting to question the fairness of the UK tax system following the introduction of tax changes in the buy-to-let market in April.

Despite the financial implications of the reforms, many landlords have not considered how they hold their interests in property and what this means for their investment. While owning property personally is simple and requires minimum fuss, for many individuals, it isn’t very tax efficient, and we are anticipating that post-tax returns on property investments could be lower under the new legislation.

Potential tax advantages
Income Tax on rental profits can be anything up to 45%, which seems a significant imbalance given that companies currently pay Corporation Tax at 20%. This already favourable rate will reduce progressively to 17% over the next four years and may even drop as low as 15% - a figure previously quoted by George Osbourne, the ex-Chancellor of the Exchequer, following the result of the EU referendum.  Therefore, if a landlord does not require rental profits on which to live, or if they are not being used to repay loan capital, establishing a private company to manage lettings portfolio starts to look attractive.

Furthermore, from 2017, loan interest will be restricted to Income Tax, but not Corporation Tax, further enhancing the appeal of the company model.

When residential properties are sold, individuals pay Capital Gains Tax (‘CGT’) of up to 28%, whereas on residential property gains, other than in limited circumstances, companies pay Corporation Tax at the lower rates mentioned above. In addition, companies are often taxed on a lower gain because they can claim an inflation allowance (known as indexation).

Shareholding and future planning
Corporate ownership allows a wide range of investors to participate as shareholders, rather than having direct interest in the properties. This also benefits Inheritance Tax planning, as assets can be passed to the next generation without having to transfer the property. For example, landlords can introduce their adult children as minority shareholders, or with generous grandparents, grandchildren can become shareholders, and dividends can be paid to them to fund school fees or other expenses, rather than grandparents paying out of their taxed revenue. Dividends can also be paid to the wider family group, which is likely to improve overall tax efficiency.

In summary, prospective and existing landlords should consider their ownership structure before making any further property purchases.

For those BTL landlords who own portfolios personally, it may be possible to move them into a new company structure; however, inadequate or poor advice could increase the risks of triggering high CGT and Stamp Duty Land Tax liabilities with no cash to settle them.

Price Bailey are a firm of chartered accountants and tax advisors who are experienced in this area, having successfully assisted clients reorganise BTL landlord property portfolios without incurring ‘dry’ CGT and SDLT charges.

Price Bailey are happy to give clients a free initial portfolio review to assess whether benefits can be had from the recent tax changes, as discussed above. Contact details can be found below.

Price Bailey Property Tax Team
Jay Sanghrajka
Partner, Head of Property
T: +44(0) 207 7382 7431

Chris Hammond
Senior Tax Consulting Manager
T: +44(0) 1223 507 632

Lisa Simon, 
Partner Head of Residential Lettings
T: 020 7518 3234