Tag: Investment

Buy to Let – Facts, Tax and Ways to increase your return

Mosaïque de logements

House prices are rising as confirmed by the Land Registry in their report 29 April 2013, the annual change is 0.9%, rent is increasing again after a drop in 2009 according to the English Housing Survey, in 2011 it went up 3% to a mean rent after housing benefit of £132 per week. So let’s see who the tenants are (English Housing Survey 2011):

 

social and private renting households receiving Housing Benefit
all
social
renters		 all
private
renters		 all
 renters
percentages
age of household reference person
16 to 24 6.3 11.9 7.8
25 to 34 12.6 26.9 16.5
35 to 44 18.1 24.0 19.7
45 to 54 16.3 15.8 16.2
55 to 64 14.1 9.0 12.7
65 to 74 15.8 7.8 13.6
75 and over 16.7 4.4 13.4
marital status of household reference person
married1 16.9 18.4 17.3
cohabiting2 5.5 9.7 6.7
single 33.2 37.6 34.4
widowed3 17.1 7.5 14.5
divorced4  20.9 17.0 19.8
separated5 6.4 9.9 7.3
household size
one 50.5 31.7 45.4
two 23.2 28.7 24.7
three 11.5 18.0 13.3
four 8.2 12.3 9.3
five 3.6 5.8 4.2
six or more 3.0 3.4 3.1
household type
couple, no dependent child(ren) 11.5 8.0 10.5
couple with dependent child(ren) 10.1 19.2 12.5
lone parent with dependent child(ren) 20.9 35.1 24.7
other multi-person household 7.1 6.0 6.8
one person 50.5 31.7 45.4
length of residence
less than 1 year 8.4 27.7 13.6
1 year, under 3 years 15.4 32.5 20.0
3 years, under 5 years 13.2 15.5 13.8
5 years, under 10 years 20.7 12.3 18.4
10 years, under 20 years 22.2 8.0 18.4
20 years or more 20.1 * 15.7
economic activity of
household reference person
full time work 2.7 13.1 5.5
part time work 9.5 18.1 11.9
retired 36.4 16.0 30.8
unemployed 13.8 17.4 14.8
full time education * * 1.5
other 36.4 32.9 35.5
total 2,395 890 3,285
£ per week
mean gross weekly income
of household reference person  206 237 215
(and partner)
sample 1,945 690 2,635

Yields are looking good, its possible to achieve 8% to 10%, take a look at the examples on http://investors.assetz.co.uk/property-listing.htm

Lending rates are low with Bank of England base rate stuck at 0.5%.

So we should see Buy to Let coming back into fashion with investors, with that in mind here are my top tips to minimise your tax:

1. Claim allowable expenses

  • Mortgage or Loan Interest (but not capital)
  • Repairs and maintenance (but not improvements)
  • Decorating
  • Gardening
  • Cleaning
  • Travel costs to and from your properties for lettings or meetings
  • Advertising costs
  • Agents fees
  • Buildings and contents insurance
  • Ground Rent
  • Accountants Fees
  • Rent insurance (if you claim the income will need to be declared)
  • Legal fees relating to eviction

 

2. If the property is furnished claim for Wear & Tear, you can claim 10% of the rent each year

3. Claim for repair and advertising expenses incurred in getting the property ready for renting

4. Consider how the property is owned for example your partner may pay less tax or if you own it 50/50 you could use their capital gains tax exemption on sale of the property

5. Consider whether owning the property within a limited company might be better, Corporation Tax is 20% for small companies in the UK which can make dividends more tax efficient than personal income.

6. Make sure any borrowings you have are on the Buy to Let so that you can claim tax relief on the interest

7. Claim the Energy Saving allowance  for energy saving work and save £1,500

steve@bicknells.net

 

 

Would you invest in a Forest?

Did you know that there are considerable tax advantages

  • The income and profits from timber sales in woodlands managed commercially are free from both Income and Corporation Tax.
  • The gain in value of standing timber, whether from the physical growth of the trees or rises in timber prices, is entirely free from tax.
  • The entire value of commercial woodland, including both the land and the trees, attracts Business Property Relief, currently at 100%, once it has been owned for two years. Provided this condition is met, there is no Inheritance Tax liability.

http://www.upm-tilhill.com/file-bank/Taxation%20Leaflet%2011%20V2.pdf

Its ethical and sustainable. It even has good returns for example http://www.forestryinvestments.co.uk/ claim that they are suitable for SIPPs and claim to have a 22% IRR return.

In a Moneywise article they say returns have been around 19% but in the long term 5% is more realistic

http://www.moneywise.co.uk/investing/investment-guides/the-pros-and-cons-forestry-investing

steve@bicknells.net

Is Gold good for your Pension?

Gold has always been about wealth preservation – it does well in a time of crisis.

There are lots of ways to invest in Gold:

  • Gold Bars
  • Gold Funds
  • Gold Shares

http://www.telegraph.co.uk/finance/personalfinance/investing/gold/8635523/How-to-invest-in-gold.html

The chart below shows how Gold Prices have increased over the last 10 years

Gold has been one of the best performing asset classes over the last few years, with annual returns averaging around 17% each year for the last 11 years.

http://www.goldmadesimple.com/

Have you got any in Gold in your pension?

steve@bicknells.net

Why invest in a Pension? Because of Tax Relief!

 

I have been looking at the Tax Relief impact on Pension Investments

Lets say you invest £10,000 per year of earned gross income, increasing each year by 3% for inflation and see the effect of tax relief at 40% and 20%, assuming a return on the investment of 7% (which you should get with Commercial Property Investment)

40% Tax Rate 20% Tax Rate
Year Pension No Pension % Diff Year Pension No Pension % Diff
1 £10,700 £6,252 71% 1 £10,700 £8,336 28%
2 £22,470 £12,954 73% 2 £22,470 £17,272 30%
3 £35,395 £20,131 76% 3 £35,395 £26,841 32%
4 £49,564 £27,808 78% 4 £49,564 £37,078 34%
5 £65,077 £36,013 81% 5 £65,077 £48,017 36%
6 £82,036 £44,773 83% 6 £82,036 £59,698 37%
7 £100,555 £54,119 86% 7 £100,555 £72,158 39%
8 £120,754 £64,081 88% 8 £120,754 £85,441 41%
9 £142,761 £74,692 91% 9 £142,761 £99,590 43%
10 £166,715 £85,987 94% 10 £166,715 £114,649 45%
11 £192,765 £98,000 97% 11 £192,765 £130,667 48%
12 £221,070 £110,771 100% 12 £221,070 £147,694 50%
13 £251,801 £124,337 103% 13 £251,801 £165,782 52%
14 £285,140 £138,740 106% 14 £285,140 £184,987 54%
15 £321,285 £154,024 109% 15 £321,285 £205,365 56%
16 £360,445 £170,233 112% 16 £360,445 £226,978 59%
17 £402,846 £187,416 115% 17 £402,846 £249,888 61%
18 £448,731 £205,621 118% 18 £448,731 £274,161 64%
19 £498,358 £224,901 122% 19 £498,358 £299,868 66%
20 £552,006 £245,309 125% 20 £552,006 £327,079 69%

Even when you consider:

  • Your money is locked up till you are 55
  • You pay tax when you take money out of the pension
  • You can get 25% out of the pension tax free

The difference in growth is massive

If you do salary sacrifice you can increase the tax effect by saving national insurance too.

So why aren’t more people investing in pensions?

steve@bicknells.net

P2P – Peer to Peer Lending – is it the solution for lenders and borrowers?

Peer to peer lending is a simple transaction between an individual that wants to lend money and an individual or business that wants to borrow money without the use of a third party facilitator, like a bank or a lending company, to manage the loan.  It started in the USA in 2006 with Prosper.

Peer to peer lending is becoming more popular as banks limit lending and consumers find themselves facing difficulty obtaining traditional financing.  Banks, trying to fix their balance sheets, have introduced much more stringent requirements for personal loans than what was required in the past and fewer people have the qualifications to obtain these loans.  Small business owners have been hurt by the contraction in lending as well.  The reduction in traditional lending to small businesses has resulted in a dramatic increase in the number of business owners interested in obtaining peer to peer loans.

http://www.peertopeerlending.co/

Sounds brilliant but the problem has been that the potential borrowers turn to P2P after they have failed to borrow from other sources and this can make the borrowers high risk.

If this issue could be over come and P2P could become mainstream, I think it could become very popular, the lenders get a good return and the borrowers get a fair interest rate and terms. Even one is a winner.

To see how it works in practice take a look at http://www.fundingcircle.com/

Also here is blog http://stevegrice.wordpress.com/2012/01/30/peer-to-peer-business-lending-in-the-uk/ which is very interesting.

It would be great to find out your views and comments.

steve@bicknells.net

 

Whats the Return on Investment from Bartercard?

To join bartercard there is a “once only initial investment” so how can we quantify our return on investment?

Every business has had to make an investment in their business to get it started, for example a hairdresser would need to fit out her shop with fixtures, fittings and equipment, so in accounting terms how can we evaluate the investment that we make when we join bartercard?

1. Pay Back Period – how many years does it take to get back our initial investment in profits – for normal investments anything less than 3 years is considered good – because Bartercard specialise in selling spare capacity and as such only product replacement costs are relevant, its likely that the profit on each sale will be around 70% profit (as used in our hairdresser/accountant trading story) – as Bartercard guarantee to get more than the joining fee in sales in the first year, the payback period is likely to be less than 2 years – so thats an excellent return on investment

2. Average Rate of Return (ARR) – this method of appraisal takes the average of the profits made over say a 3 year period (or the life of an asset) and shows the result as a % of the initial investment I estimate a 70% ARR, obviously this will vary from business to business, but I am sure you will quickly be able to work out the return for your business

3. Net Present Value/Discounted Cash Flow – this method of appraisal takes into account the time value of returns, its often considered the best and most precise way to assess returns, to calculate the Net Present Value you create a cash flow table year 0, shows the investment as a cost, then the net profits are shown in the subsequent years and a factor is applied to remove the effect of inflation, the higher the NPV the better the investment

4. Internal Rate of Return – this is also described as the effectie interest rate, to calculate this we increase the Discount Rate in the DCF (3 above) until the NPV equals zero and that produces the return rate

If you need help doing this analysis for your business drop me an e mail

steve.bicknell@uk.bartercard.net