Buy to let articles
In recent years buy to let has been a popular way of investing in residential property.
Stock markets are out of favour with many investors who have seen the values of their portfolios, endowment
policies and pension funds shrink, whereas property has generally continued to rise in value.
Interest rates are at historically low levels and mortgage finance is readily available on
competitive terms from major banks and building societies. This brings property investment within the means of more
investors than ever before. In these notes we will take the example of a foreign domiciled person, a non-resident
of the United Kingdom, buying a property in London with the benefit of loan finance, but the general principles can
apply to many other markets.
Buying to let pre-supposes that there is a tenant willing to rent
the premises and provide the cash flow, which will service the borrowing and is only one of the factors, which
need to be taken into account before entering into a commitment. These can be summarised under three main
It has been said that the three most important matters to take
into account when buying property are location, location and location and this maxim holds just as true for
o It should be situate in an area where tenants are looking to
o It should be attractive to tenants and be, for example, an
apartment, penthouse or a period or modern house. Listed buildings or converted churches may have their appeal
but it is to a narrower market
o It should be in, or brought into, good condition.
o It should be in an area where property is in demand, making a
resale easier in the future.
For the right property mortgages are available both onshore and
offshore, at competitive rates, from many of the major lending institutions and the terms can be negotiated. It
is possible to obtain a loan on a repayment or interest only basis and for an agreed period. Whilst higher
percentages are sometimes available we suggest not borrowing more than say 70% of valuation to avoid a cash flow
crisis if interest rates rise and to allow for periods when the property is vacant. The lender will also be
looking for a monthly rent of the order of 130% of the monthly repayment.
In the United Kingdom the investor will need to take into account
the three main direct taxes,
o Income tax, which is payable on rents. Loan interest and the
costs of repairs and maintenance are deductible
o Capital gains tax, which is not payable by a non- resident on
the sale of a property held only as an investment and not as part of a trade or business.
o Inheritance tax, which is charged at 40% on the amount by which
the aggregate value of chargeable assets exceeds a threshold, currently £263,000.
Exposure to taxation can be limited if, instead of the property
being registered in the name of the investor, the title is held in the name of a company formed in a tax free
area, the British Virgin Islands for example. This subject is covered below.
There is of course one other important factor in this
It is important to take up references on a tenant both to ensure
that he can pay the rent and that the occupants are likely to keep the premises in good condition. Amongst
preferred tenants are professionals such as bankers, stockbrokers, financiers, solicitors etc. many of whom
require a property only when they are in the city and who have no interest in purchasing.
Furnished or Unfurnished
This is a decision to be taken in the light of the objectives of
the investor. If he is looking for a long- term tenant, unfurnished may be the answer. The typical tenant
described above may prefer a furnished property however.
Structuring the investment
As mentioned above, in order to reduce exposure to taxation, the
property should be registered in the name of an offshore company, the shares in which are owned by the investor.
By this means our foreign domiciled, non-U.K. resident investor can,
o Eliminate completely any liability to inheritance
o If each property is held within a separate company, avoid the
risk that on a future sale the proceeds will be treated and taxed as trading income.
It is very important that the company itself be managed and
controlled from a non-taxing jurisdiction and this is where the Chesterfield Group can help. Our services
o Forming the company in a suitable location
o Acting as Directors and Secretary
o Maintaining the Registers and filing the returns required by
o Keeping the accounting records and preparing annual financial
o Filing the tax returns
o Liasing with solicitors, property managers etc. as
- buy to let best buy
When it comes to buy to let best buys, everyone seems to have their own little 'secret weapon' such as location or insider tips or advice. How come is it then that these buy to let best buys so often come back to bite the investor from the back? Well I have the answer to this question and feel it is my duty as a Wealth Creator to let you all in on this very important information.