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WELCOME
UK Property Taxes
Context
• Commercial
• Residential
VAT
Commercial property only
TOGCs
Mansion tax?
£2m threshold
£2m – 3m - £3,000 p.a.
Over £3m - £28,000 p.a.
ATED
£1m threshold
£500k from April 2016
£1m – 2m - £7,000 p.a. £2m – 5m - £23,350 p.a. £5m – 10 m – £54,450
£10m – 20 m - £109,050 over £20m – £218,200
50% increase – causing problems for historic ownership structures
ATED Conditions
• UK residential property
• “non-natural person”
Not acting as nominee or trustee
ATED Exemptions
Commercial letting to third parties
Development and re-sale
Not occupied by a connected person
Returns must be submitted and reliefs claimed within 30 days of completion
Why was ATED introduced?
Advantages of “non-natural persons” –
Avoids stamp duty land tax on sale
Avoids inheritance tax (non-doms only)
Stamp Duty Land Tax
Introduced in 2003
No more “resting on contract”
4 December 2014
Rates up to 12% (over £1.5m) for residential property
Multiple dwellings relief
Commercial property SDLT
4%
Purchase of 6 or more dwellings
15% SDLT
UK residential property
Non-natural person
Over £500k (originally £2m)
Exemptions as for ATED
Inheritance Tax
40%
Nil-rate band
£325,000 (transferable)
£1m nil-rate band?
Non-doms
IHT Planning
GWR/POAT
Gift shares in rental properties while retaining income?
Keep assets separate to avoid GWR
Capital Gains Tax
Previously only applied to UK residents, except for:
Temporary non-residents
Non-residents liable for ATED related gain
Non-residents now liable to CGT on UK residential property
Individuals, “close” companies and trusts
Gains from 5 April 2015
Valuations
Returns within 30 days of sale
Private residence relief – new 90 days rule
Rental Property
Individual
Corporate
BIM 45700 (individuals only)
Property
Sound Portfolio Investmentor
Overvalued Asset Class?Matthew Hunt
June 2015
18
Returns from property – the historical perspective
Valuation of property – cheap or expensive?
The market environment – supply and demand
Investment strategy
Agenda
19
Property Total Returns 1983 – 2015: Beware the Cycle
-15.0
-10.0
-5.0
0.0
5.0
10.0
Q1 1983
Q1 1986
Q1 1989
Q1 1992
Q1 1995
Q1 1998
Q1 2001
Q1 2004
Q1 2007
Q1 2010
Q1 2013
% R
etur
n
Source: IPD
Worst 12m : -27%Best 12m : +30%Average : +7.8%
20
Commercial Property Returns – A Rollercoaster Ride
-40
-30
-20
-10
0
10
20
30
40
50
60
2000 2002 2004 2006 2008 2010 2012 2014
%Rolling 12m Total Return
Property
Source: IPD
21
Bonds Have Less Downside
-40
-30
-20
-10
0
10
20
30
40
50
60
2000 2002 2004 2006 2008 2010 2012 2014
%Rolling 12m Total Return
Property
10 yr Gilt
Source: IPD, Reuters
Correlation to Gilts: -0.2
22
Equities Have More Upside
-40
-30
-20
-10
0
10
20
30
40
50
60
2000 2002 2004 2006 2008 2010 2012 2014
%Rolling 12m Total Return
Property
Equities
10 yr Gilt
Source: IPD
Correlation to Equities: 0.5
23
UK Asset Class Valuations – Property 4% Range
0
1
2
3
4
5
6
7
8
9
2000 2002 2004 2006 2008 2010 2012 2014
%Income Yield
Property
Source: Bloomberg
24
UK Asset Class Valuations – Beware the Crossover
0
1
2
3
4
5
6
7
8
9
2000 2002 2004 2006 2008 2010 2012 2014
%Income Yield
Property
10 yr Gilt
Source: IPD, Reuters
25
UK Asset Class Valuations – Property Relatively Attractive
0
1
2
3
4
5
6
7
8
9
2000 2002 2004 2006 2008 2010 2012 2014
%Income Yield
Property
Equities
10 yr Gilt
Source: IPD, Reuters
26
UK Transaction Volumes Rising as Confidence Grows
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015£0
£10
£20
£30
£40
£50
£60
£70
0%
10%
20%
30%
40%
50%
60%
Transaction volumes Q1 Q2 Q3 Q4 % in Central London
Bill
ions
GB
P
Source: IPD, M&G
27
Limited Construction Supports Rental Growth
Completions by sector, excluding industrials (million sq ft): 1986 - 2017
Peak
Off
ice
s
5.2(2011)
28.2(1991)
Lowest
Re
tail
Wa
reh
ou
sin
g
15.3(1989)
1.7(2010)
Avg.4.5
2.3
2016
2.5
2015
2.3
2017
9.3
2016
6.7
2015
9.8
2017
Avg.11.6
Source: M&G
28
Prime vs Secondary: Yield Gap Now Contracting
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
Yie
ld
Prime shopping centres Good secondary shopping centres
Rising yield gap Stable yield gap Falling yield gap
Source: M&G
29
Offices: Regions Catching Up London
Rental Growth Slowing
Rents falling
Rents bottoming out
Rental Growth Accelerating
Manchester
City
Edinburgh, Glasgow
Thames Valley, Bristol
Birmingham, Leeds
West End
Source: M&G
OPEN-ENDED FUND
Direct exposure to cycle
Management added value
Liquidity constraints
Cash drag
Risk of lock-up
Specialist funds available
CLOSED-ENDED FUND
Premium / discount to NAV
Management added value
Benefit / risk of leverage
Reasonable liquidity
QUOTED EQUITY
Premium / discount to NAV
Development potential
Benefit / risk of leverage
Good liquidity
30
Different Types of Property Investment
31
Different Investment Strategies: Leverage = Volatility
0
20
40
60
80
100
120
140
160
180
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
FTSE 100
IPD Index
Closed Fds
Open Fds
Quoted
32
Property is volatile and cyclical
Property valuations remain attractive
Financing availability is supporting demand
Supply is limited and is driving up prices
Rental income is rising
The cycle is well advanced in London, beginning in regions
Choose your investment vehicle carefully
Conclusions
33
“The information in this document is believed to be correct but cannot be guaranteed. Opinions and forecasts constitute our judgment as at the date of issue and are subject to change without notice. Certain investments carry a higher degree of risk than others and are, therefore, unsuitable for some investors. Before contemplating any transaction, you should consult your financial adviser.
The research and analysis in this document have been procured, and may have been acted upon, by
Prospect Wealth Management and connected companies for their own purposes, and the results are being made available to you on this understanding. Prospect Wealth Management, its clients, officers and connected companies may have a position, or engage in transactions, in any of the securities mentioned.
Neither Prospect Wealth Management nor any connected company accepts responsibility for any direct or indirect or consequential loss suffered by you or any other person as a result of your acting, or deciding not to act, in reliance upon such research and analysis. Past performance is not a reliable indicator of future results. Forecasts are not a reliable indicator of future performance.”
Prospect Wealth Management (PWM) is a trade name of Raymond James Investment Services Limited (RJIS) utilised under exclusive licence. RJIS is a member of the London Stock Exchange and is authorised and regulated by the Financial Conduct Authority Registered in England and Wales number 3779657 Registered Office 77 Cornhill London EC3V 3QQ
Risk Warning