Time to get out?


Readers Question - Published on 13/04/2017
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I’ve been an avid reader of Property 118 for a few years now and I’m frequently amazed at the wealth of information freely shared by its contributors. Long may it continue.

One question which surfaces from time to time asks “when do you start to enjoy what you’ve built up?” 

This usually refers to landlords who have spent years creating something which they hope will fund their chosen lifestyle and allow them to enjoy a comfortable retirement.

Well, after 22 years as a landlord, approaching my 63rd birthday, I find its now my turn to ask that question.

The raft of Central and Local Government initiatives over the past two years designed to discourage the Private Rental Sector has finally taken its toll. I thought the introduction of Section 24 was a step too far but the possibility of being asked to pay the missing duty on my tenants illicit tobacco sales just blew me away.

I’ve spent considerable time pondering the implications of selling up and I’ve asked myself numerous questions such as:

  • Would I miss the regular income?
  • Would I kick myself if property prices greatly increased after I sold up?
  • How much Capital Gains Tax would I be liable for?
  • Do I really want to give away 000’s of £’s to a Government who are doing their best to make my life so difficult?
  • Where would I invest the net proceeds of the sale?

I could probably fill a page with questions I have considered over the past 18 months, but I never seem to arrive at a definitive conclusion. There are always pluses and minuses for whatever decision I arrive at.

My current thinking is to reduce my portfolio to a level where the income derived keeps me in the 20% tax bracket. I think I could just about stomach that. But how do I go about this?

I read, so often, of these illusive Southern based investors who are keen to put their funds to work in the profitable North. I’m based just North of Manchester so how do I find them?

Where is the best place to advertise my properties?

Can I trust them?

Would they look after my tenants the way I do?

How do I ensure I won’t fall victim to some scam merchant?

If anyone can provide some insightful information, you would, as they say “make an old man very happy”.

Thanks

Tom

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Comments

  • Member of The Landlords Union - Click Here for Details

    Hi Tom

    Have you considered incorporation.

    You might be able to wash out all capital gains you’ve made over the last 22 years.

    You might then sell a few, have the rest managed and pay yourself dividends of £43,000 a year.

    Retained profits will be taxed at the 19% corporation tax rate.

    Please see https://www.property118.com/optimal-tax-planning/91857/

    You could also consider gifting shares as potentially exempt transfers.
    .


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  • I’m thinking same, as mine come up now, doing ’em up & leaving ’em with a letting agent.


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  • If you looked at where you would be ideally, what would that look like? For example, do you want to retire and have a reliable income without hassle? Or do you want to start a new exciting business that isn’t in the govts gunsights for more regulation and taxation?. Or do you want something in between, perhaps your existing business but with less hassle?

    From the specific idea of what you want, rather than the general what you don’t want, you can start to find how to best do it.

    For example, if you want what you have with less hassle, you might engage a _good_ agent to take the on hassle, their fees are deductible reducing your tax burden. In short, if the govt are going to take it as tax anyway, you might as well divert it to an agent and get something for your trouble. This allows you to keep control of the security of tenure of your tenants.

    You could also, as Mark says, restructure to reset your CGT sell some property and pay down mortgages to remove worries about interest rate rises and tenant tax.

    So start with your ideal scenario and think about how to make it happen.


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  • Just typed a huge answer and the poxy page flipped and I lost the lot! I just can’t be bothered to write it all again, so suffice it to say – Tom, you are not alone and many landlords (including myself) have had to make decisions that they never thought would come up, especially at this time of life! Good luck in whatever you decide to do – we’re off to Spain (sorry Mark) for at least the next five years, after which, to quote an old saying – “Frankly my dear, I don’t give a damn!!


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  • You are running a business.
    This is as good as it gets.
    It is only in fiction that you can have hot and cold running chambermaids.


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  • Member of The Landlords Union - Click Here for Details

    Reply to the comment left by “CazT ” at “14/04/2017 – 10:05“:

    Have you checked the tax position in Spain?

    It’s arguably worse than the UK.
    .


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  • It’s tempting to do a F**k you letter to MP and council along the lines of, ‘ thanks to the miserable time you have given me with right to rent, S24, licencing, …. I’m removing myself and the money I’ve earned from your jurisdiction and leaving you with XYZ tenants to house. Since you think landlords have it too easy and I’m not taking any properties with me, I’m sure you’ll have no trouble accommodating the XYZ tenants that are about to become your responsibility.

    However, the tail mustn’t wag the dog. I’m tempted to shut up shop but think that overall, I’d be throwing out the baby with the bathwater.

    I think decent landlords do not naturally have the mindset to play legitimate cat and mouse with the tax collectors & local council. At the moment though, that seems to be the way to maximise returns. I’d love to be focussing on the next deal but instead all my energy goes towards finding the best way forward with what I’ve got.


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  • Reply to the comment left by “Mark Alexander” at “14/04/2017 – 11:07“:

    You’re on my to do list and I’m looking forward to hearing you at Ranjan’s thing later in the month 🙂


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  • Member of The Landlords Union - Click Here for Details

    Dear Tom,

    I understand fully where you are coming from as I am the same age. A few years ago, with the prospect of interest rates rising, I aimed to sell off my portfolio by the time I was 65, pay my CGT and invest the balance remaining, which would, at 3- 5% return on my investments, give me an excellent income for the rest of my life. Now if I did this, I would have to draw down my capital from Day 1, to enjoy my modest lifestyle. With Section 24 Rules coming in , I have spent the past 6 months angsting on what is the best thing to do for my situation, and had to consider all the issues you have had to do. I think that the people who are having most problems with the Section 24 are those who have a well-paid job to start off with, but my rental portfolio is my only income.

    Four years ago , my Financial advisor was suggesting I sell my least profitable house and he could get me an11% return. On my last review with him, he didn’t even suggest me doing so – as I would have to have a 4 million pound pension pot to give me the same income as I am getting – and congratulated me on my 40 year strategy to provide for my retirement. So I will share with you a few strategies I have considered and maybe that will help.
    1) I am not sure about incorporation as my understanding is that you will have to pay CGT on the market value on the day of the transfer to the Limited Company. You would also have to pay 6% Stamp Duty as I am not sure that the common person between the two entities, where you only pay stamp duty on the extra over and above what the input cost of the original cost of the properties is still available. Also the Arrangement fees and interest rates are higher for Ltd Companies.
    2)You may be on a very low rate for your existing loans – one of mine ( for a limited company) is 0.75% above base for the term – 12 years of which is remaining. So I am hanging on to that one and not remortgaging.
    3) You may consider remortgaging one or two of your properties to release capital for you to enable you to enjoy your lifestyle. If you are a 20% tax payer, then this will not take you into the 40% tax bracket. You will have to pay an arrangement fee, but if it’s on a five-year fix, then these will not be too onerous – pay the arrangement fee up front and you can put it against tax in the first year. Obviously, you will have to consider, as I recently did, whether the loss of a lower rate for the term can be balanced against the increased cost of the mortgage (again if you can keep in the 20% range, then this should not impact on your tax payments.)
    4) If you do decide to sell everything, give notice to your tenants, and pay your tax, then you would have to support the mortgage whilst the sale goes through – in some areas this may take years , so a phased sale of your properties would be more appropriate. I have already done this with two properties and regretted it, due to the tax I had to pay, which didn’t release as much money as I wanted two . (One of those would now be grossing me £30000 plus per year and worth £150000 more, so I could have remortgaged it to reflect the increased value, the other, the rent went up by 50% during the course of the sale and the vale up by 10%, so I could have released £50,000 by a further Advance)
    5) If you are in the lucky position of having sold your properties, you are then in the position of having to invest the money across several business entities to protect your cash. These accounts have to be managed and monitored. Some of the investment funds you may want to put it into will invest in the Corporate housing schemes so favoured by our Masters, and you will not get the same return as if you managed it yourself.
    6) If you are so fed up with managing your properties yourself (and its a real pain, it drives me mad at times) , you can put it in with a letting agent, and forgo some of your profit – the fees are a cost against the rent), you also have to trust the agent that they do not overcharge you for their services and that any repairs are reasonable. I realise I will have to carry on for a few years yet, but know that option is possible.
    7) So in consideration of all these points, I have applied one or two of them to my (small) portfolio and decided that If I did want to do some great adventure travelling around the world I would rent my house out and put my portfolio into the hands of agents – my one in St Albans is brilliant, but not so sure about other areas, and then take over the management when I return.

    I hope that you will find this helpful

    Kind regards

    Anne Noon


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