Tax Efficient Investment

by Mark Alexander

17:54 PM, 3rd August 2015
About 3 years ago

Tax Efficient Investment

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Tax Efficient Investment

Own Shares in the Property118 Rental Property for-sale PortalWhat is a tax efficient investment for landlords to consider if they don’t like the idea of pension schemes and want to invest into something else other than property? Tax Efficient Investment

The answer is a business which benefits from the Seed Enterprise Initiative Scheme, AKA SEIS.

Clearly they would want to invest into something they understand, i.e. property related.

The good news is that investment into Property118 Portal Ltd fits this criteria.

More details about the tax incentives below but first  ……

What is Property118 Portal Ltd?

Property118 Portal Ltd. is a new venture (a completely new business) hosted on the Property118.com website. It is an advertising portal to help landlords and agents to sell properties with tenants in situ. Adverts are free but there are premium upgrade options too.

Buyers search by postcode or town and simultaneously set up email alerts so they are notified each time a property matching their purchasing criteria is listed.

Shares in Property118 Portal Ltd are being sold to raise funds for a national TV advertising campaign.

How is the business structured?

To explain the structure in laymans terms I have used an analogy of retailers and shopping malls.

The value and profitability of a retailer generally improves if its shops are located in a busy shopping mall. Most retailers do not own the mall, they rent the space for their shops.

In our case the developer and the owner of the mall is Innovative Landlord Solutions LLP. The name and location of the mall itself is the Property118.com website – it is very busy.

The retailer seeking crowd funding in this instance is Property118 Portal Ltd. It is an anchor tenant for the mall, hence it has prime location – the home page of Property118.com.

All major retailers and shopping mall owners recognise that anchor tenants attract more footfall into shopping malls. All of the retailers benefit from the footfall created by shoppers visiting other retailers. This is a proven and very successful business model. As an online business we do not have footfall but we do have user traffic, hence the use of this analogy.

This is legally documented in a Business Cooperation Agreement.

How will Property118 Portal Ltd make money?

There are four sources of income as follows:

1) Premium upgrades to advertisements cost of £11.80 per week per advert. The benefit of upgrading is that adverts rank above free listings in search results.

2) Reveals – In order to minimise the occurrence of nuisance calls to advertisers we charge £1.18 to display contact details of vendors, developers and agents to prospective buyers.

3) Auction House Referral commission – We cross promote the online conditional auction model (operated by Auction House UK franchisees) to vendors and receive income from Auction House UK for successful referrals.

4) Newsletter Sponsorship – The Newsletter will be sent to the database of enquirers who have previously expressed an interest in a property advertised on the portal.

How big is the market?

According to Paragon Mortgages Plc. there are five million UK properties owned by private landlords. Portals dominating the online advertising of property with vacant possession (e.g. Rightmove and Zoopla) and the estate agents supporting them naturally assume the traditional vacant possession sales model.

“An army of two million private landlords now own and rent out five million properties, according to the report by mortgage lender Paragon. This means 18pc of households now rent from private landlords. And the proportion is growing, as investors continue to see property as a source of future income and profit.” Source The Telegraph 22nd October 2014

The Private Rented Sector has been growing rapidly since the phase “buy-to-let” was first coined by the Association of Residential Letting Agents in 1996. The sector is continuing to grow, at least in part due to over 55’s seeking better returns from their pension funds, which can now be liberated and used to fund alternative asset classes such as rental property to provide income in retirement.

We have estimated that over 60,000 UK families are forced to consider the sale of BTL properties every year.

The following data was published by HMRC on 21st April 2015.

Number of residential property transaction completions with value £40,000 or above for the tax year 2014-2015 = 1,204,320.

Based on 18% of all households being in the Private Rented Sector (according to data produced by Paragon Mortgages Plc) this suggests that approximately 216,777 sales fall into the target market for the Property118 portal every year.

What are the projected returns?

Business plans and projections are available on request, email: mark@property118.com

The following is a snapshot of our 5 year financial forecasts

Property118 Portal Ltd Projections Summary

How do I invest?

Before you are able to invest you will need to certify yourself as a high net worth investor or complete a short test to make sure you understand the risks associated with investing into start up companies.

Click here to invest

Anything else I should know?

Yes absolutely, especially if you would like to reduce your tax bill.

Would you consider swapping the majority of your tax bill for shares in Property118 Portal Ltd if it was possible to do so?

Good news – this is entirely feasible!

Here’s how it works …

Due to completion of our crowd funding being SEIS conditional, you would get 50% tax relief on your investment (regardless of what tax band you fall into). For example; if you invest £10,000 your tax bill would reduce by £5,000.

If you have made a capital gain on the disposal of an asset and use the amount of the gain in making a SEIS investment into Property118 Portal Ltd you will not pay capital gains tax on 50% of the amount you invest either – in other words, you get an extra benefit.

Example; if a taxable capital gain has already been made of £10,000 (after deducting in the annual CGT exemption) a CGT liability of either £1,800 (18% basic rate tax) or £2,800 (28% higher rate tax) will arise.   In this scenario, the £10,000 invested results in 50% of the capital gains tax being saved as well, i.e. £900 or £1,400.

The maximum tax relief that can be obtained if an SEIS startup succeeds is 50% income tax credit PLUS 14% (50% of 28%) capital gains tax relief = 64% tax relief.

After three years, no capital gains tax is payable on the future sale of the shares.

If the business were to fail then CGT loss relief could be claimed to reduce future CGT.  This has the effect of increasing the tax relief by a further 18% or 28%.

If you decide to invest into Property118 Portal Ltd the outcomes are:-

1) we achieve our investment target

2) you swap the bulk of your tax bill for shares in Property118 Portal Ltd

Win/Win = happy days 😀

How do I invest?

Shares are available to purchase via the Seedrs crowd funding platform – LINK HERE

What is SEIS?

SEIS is a Government tax incentive scheme to encourage investment into start up companies, the full name of the scheme is Seed Enterprise Initiative Scheme. You can obtain a full explanation and examples by visiting the .Gov website via THIS LINK

Related articles

Tax Efficient Investment – LINK

Buy or Sell Tenanted Property – Improved Search Functionality – LINK

Own Shares in Property118 Portal LimitedOwn Shares in Property118 Portal Limited



Comments

Mark Alexander

11:48 AM, 24th July 2015
About 3 years ago

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