Archive for February, 2016

New Tax On The Purchase Of Second Homes And Buy To Let Properties

Tuesday, February 2nd, 2016

Prices-Rising

The Scottish Finance Secretary, John Swinney, announced in December, 2015, the introduction of a new 3% charge payable on the purchase of second homes in Scotland, including buy to lets, effective as of 1st April, 2016.

The move mirrors a similar proposal previously outlined by the UK government. The 3% charge (payable in addition to Land and Buildings Transaction Tax under the current rules) applies to anyone purchasing a second home or a buy to let property.    As well as buy to let investors, this will also affect anyone purchasing a holiday home or purchasing a property for children or for parents.  The new tax will apply to any property purchased for more than £40,000.

At the moment any property purchased for £145,000 or less incurs no tax charge, however after 1st April, 2016 a second home or buy to let property purchased for £145,000 will incur a tax charge of £4,350.  A buyer of a second home in Scotland priced at £300,000 will have to pay a total of £13,600 in tax after 1st April, 2016, as opposed to £4,600 prior to this date.

John Swinney defended this new tax on the basis that it was necessary to prevent buyers from elsewhere in the UK purchasing property in Scotland in order to avoid the similar tax previously announced by the UK government, the argument being that this would have made it more difficult for first time buyers in Scotland to get onto the property ladder.

It is certain that this additional tax will have an impact on the buy to let market and will adversely affect the position of both tenants and landlords.   The surcharge is a blow to landlords who have also recently suffered the loss of buy to let tax relief.   Less buy to let properties are likely to be purchased which will no doubt lead to a shortage of private properties available for lease.   Rents may also increase as landlords seek to recover costs and potential tenants compete for the dwindling supply of available properties.

The guidance issued indicates that the intention is to charge the increased tax if, at the end of the day, an individual has an ownership interest in two or more residential properties.  However the surcharge will not be payable if the purchaser is replacing their main residence.  An example would be a person owning a buy to let property and a main residence.  After 1st April, 2016 the sale of the main residence followed by the purchase of a new home would not lead to an increased tax charge, however selling the existing buy to let and purchasing another would.

If an individual purchases a new home but decides to rent out their current property rather than selling it, that person will be deemed to have purchased a second home and the 3% supplement will apply.   If the original property is eventually sold within eighteen months of the purchase of the new property, then the additional tax will be refunded.

Properties situated outwith Scotland, and indeed outwith the UK, will be taken into account. Therefore someone with a property in England or Spain will be liable for the additional tax when buying a property in Scotland.

A limited company purchasing a residential property will be charged the additional tax even if it only owns one property.  This is designed to prevent individuals from setting up companies to purchase properties to avoid the new charge.

A property owned by the buyer’s spouse, co-habitant or child under sixteen, is treated as being owned by the buyer of a property.   Properties in the name of one spouse will count against the other when determining whether more than one property is owned.   Joint buyers are also caught under the new rules.  If two people, A and B, each own their own property which they occupy as their main residence and go on to buy a house to move into together, with A selling his property, but B keeping her original property to rent out, then the additional tax is payable on the joint purchase, because B is not replacing her main residence, even though A is.

If you are potentially affected by the new rules, then the only advice that can be given with any certainty is that in order to be sure to avoid paying additional purchase tax on a buy to let or second home, purchasers have to buy now in order to complete their purchase prior to the 1st April, 2016 deadline.

For advice on the implications of the new tax or on buying or selling generally, please contact Estate Agency Partner, Brian Sutton on 01224 563340 or by email at b.sutton@jgcollie.co.uk

Congratulations on becoming a new Company Director

Tuesday, February 2nd, 2016

Prices-Rising

Have you recently, or are you about to, become a director of a Company? If so, you should expect to receive a letter in the form below from Companies House, along with a leaflet on Directors’ Duties, but you may wonder why?

Previously, the appointment of a new director could be filed electronically, but in order to do so, 3 pieces of sensitive personal information (such as town of birth, father’s first name, last 3 digits of passport number etc) had to be provided. Filing new appointments using a paper form has now almost disappeared completely, and whilst electronic filing is still the norm, the “sensitive information requirement” has now been removed. Instead, the company now has to confirm that the new director has consented to act, and Companies House write to all new directors to “congratulate them on their appointment” and provide some information about their duties as a director. Accordingly, if there has been an error in or some other mistake relating to the appointment, Companies House hope that the individual will make contact so that corrective action can be taken.

However, this system is not yet foolproof…..Companies House currently write to the service address filed for the new director, not their usual residential address (“URA”). This means that if the service address is, for example, the company’s registered office or business address to which the director may not have regular access, there is no certainty that the letter will actually be received by him/her. If this correspondence was sent to the new directors URA (which requires to be intimated to Companies House at the time of appointment but is not made public, unlike the service address), there should really be no doubt about receipt. We understand that Companies House are hoping to improve their procedures and in the future be able to write to the URA.

If you get a letter of this nature, and have not agreed to become a director, either get in touch with Companies House or ourselves without delay!

You can see an example of this type of letter here!

If you wish further information on Company incorporation or Companies Act compliance please contact either our Innes Miller, Corporate Partner, by email at i.miller@jgcollie.co.uk or our Shona Cramond, Company Registrar, by email at s.cramond@jgcollie.co.uk.

Buying Property at Auction

Tuesday, February 2nd, 2016

Prices-Rising

Buying property at public auction or “roup”, to use the Scottish term, was commonplace in Scotland many years ago. However, although auctions have always taken place, it has been comparatively rare in recent times for properties to be sold by auction. Property here has been either sold on the open market or by private agreement between seller and buyer, writes Forbes McLennan.

In the difficult market conditions now upon us, I suspect there may be a revival for property auctions and we may see some properties in Aberdeen “going to roup”.

Property auctions are seldom held in Aberdeen.  The vast majority of property auctions in Scotland are held in Glasgow or Edinburgh although the property sold at these auctions will come from all over Scotland including the North-east.  The properties being sold can range from quirky items like electricity sub-stations and septic tanks, to expensive properties such as country estates.  In my time I have acted for clients who have bought anything from underground bunkers to development sites at auction.

The main thing for buyers to remember is that every property comes to auction for a reason. It is essential that the buyer find out what that reason is.  Often the property will have not sold on the open market or the seller will think it is not worth putting it on the open market.  This reason may be something to do with the property – for example, structural defects, unauthorised alterations, dampness and rot problems, expensive repairs, title problems and so on – or something to do with the seller – such as financial or personal problems which make it a necessity to achieve a quick sale.  In most cases the property will be unmortgageable.  This means that the buyer must have cash available to pay for the property.

Any purchaser buying at auction must accept the property “warts and all”.  In an open market purchase, the purchaser may have some comeback on the seller depending on the terms of the contract or “missives”.  This is not the case with an auctioned property.  Any buyer at auction will be hoping to purchase the property at a heavily discounted price.  The trade-off is that the buyer will effectively be inheriting the seller’s problems.  There is nothing inherently wrong with this as long as the buyer is going into it with his eyes open.  In this sense a property auction is no different from a normal sale room auction or car auction, although the stakes are much higher.

As for the auction itself, a catalogue will be available online with details of properties for sale.  In some cases a seller’s pack including surveyor’s Home Report will be available.  Buyers should try to obtain as much information about the property as possible.

There is no need to actually attend the auction although that is always best. Bidders can place bids by telephone through the auction house or even online in some cases. Sometimes it will be possible to pre-empt the auction with a successful bid prior to the auction date.

If successful, the buyer has to pay a 10% deposit there and then along with the auctioneer’s admin fee which can be around 1%.  The contract is concluded that day and the date of entry is normally 28 days from the auction date. This is a very tight timeframe. The buyer is immediately committed to the purchase which is again unlike an open market situation.  Buying a property at auction is therefore not something to be entered into lightly.

The main aim for most buyers at auction will be to purchase the property at a knock-down price, renovate it and then sell it on as a mortgageable property on the open market.  This approach is frequently seen on TV in the programme “Homes Under the Hammer”.  In order to achieve this, the acquisition cost is crucial as it will not be possible to make money in the short term if you overpay at auction.  You also must have some idea of the cost of the renovations, which is why buying at auction can suit tradesmen who can do renovations themselves or at cost price.

If the sales market is not good, another approach is to retain the property after renovation and lease it out, perhaps with a view to selling later when the market improves, or to build up a portfolio of leased properties.

Clearly there are pitfalls when buying at auction but a prudent buyer can minimise the risk by doing his homework and not overpaying.  The exercise can be profitable but only if the purchaser buys the right property at the right price.

Buyers looking to purchase at auction should seek advice from a solicitor experienced in the property market at the outset and not after the property has been bought.

Should you wish advice on buying property at auction, please contact Property Partner, Forbes McLennan by email at f.mclennan@jgcollie.co.uk

The Consumer Rights Act 2015

Tuesday, February 2nd, 2016

Prices-Rising

The Consumer Rights Act 2015 came into force on 1 October 2015.  It applies to contracts between traders and consumers entered into after 1 October 2015.  Contracts entered into before the coming into force of the Act are still governed by the previous legislation, namely the Sale of Goods Act 1979, as amended.

This is a major development in consumer protection law.  It not only consolidates the previous legislation but also introduces a number of new concepts and brings up to date consumer legislation across the whole of the UK.

A consumer now has a series of remedies, in addition to common law remedies, which require to be exercised in a sequential way.  As it was with the previous legislation, goods sold by a trader to a consumer require to be (i) of satisfactory quality, (ii) fit for their purpose and (iii) as described or match the sample provided.  The new Act goes on to narrate that such goods must also correspond to any models seen or examined at the stage of the contract being made and also be installed properly by the seller where such installation is to be carried out as part of the deal.

Where items are defective, the consumer is entitled to a straight refund within 30 days (that is 30 days of the date of delivery of the goods) or a right to repair or replacement of the items.  Such repair or replacement has to be provided at the seller’s own expense.  Thereafter if the repair or the replacement item continues to be unsatisfactory, the purchaser can either then intimate rejection of the item and seek a full refund provided that is done within six months, or a partial refund after six months. Alternatively, whilst the consumer may retain the item he would then be entitled to an abatement of the price.  In such a situation however the seller will always have an option to say no to either option if he can show that that would be an expense out of all proportion to the defect.

One of the innovative features of the new Act is a remedy for defective digital products.  Digital products include computer games, DVDs, kindle books and the like.  If there is a defect with such digital products, consumers can insist on repair or replacement and thereafter an abatement of the price if the defect is not resolved to their satisfaction.

The legislation also introduced remedies for consumers where defective or inadequate services are provided to them.  Consumers are now entitled to insist upon repeat performance of the job where it was not conform to contract or not carried out in terms of the contract’s specification and also a reduction in the contract price if the remedial work was ineffective in remedying the defect.

Verbal or written representations made by a trader about the services to be provided can now be taken to be part of the contract between the consumer and the trader.  The previous law was to the effect that such representations were not part of the contract.  Now they will be deemed to be contract terms and a consumer can sue for breach of those terms.  Again, this strengthens the consumer’s position in a dispute with the trader.

If you require further advice on contractual matters, please contact Court Partner, Duncan Love, by email at d.love@jgcollie.co.uk

Government Warning: Inheritance Tax can damage your wealth (preservation)!

Tuesday, February 2nd, 2016

Prices-Rising

by Douglas Blanchard, Financial Adviser at James & George Collie Financial Management

Now that the liberalisations to the pension system have had an opportunity to bed in, one of the most generous – and transformative – options to consider is the ability to pass on virtually all types of pension funds outside of the saver’s estate, for Inheritance Tax purposes.

So, how does it work?

As with all estate planning, the complexities mount as plans are tailored around individuals’ circumstances. However, depending on your viewpoint, the following “Three Steps (to Heaven)” show clearly how anyone with a pension and whose total assets exceed £325,000 (£650,000 for a married couple) can limit the impact of death duties by simply re-arranging their assets and altering their financial planning priorities.

Step 1: Put as much inside your pension as you can – while you can

Any contributions to your pension attract tax relief and accumulate income and gains free of tax once inside. The pension regime is more liberal than the ISA regime in that you can invest more by way of the annual allowance, currently £40,000 and the rollover of the previous 3 years allowances, and hold a wider range of investment types, for example commercial property.

In addition to the annual allowance on contributions, there is a lifetime allowance limit on pension funds built up and from 6 April pension assets must not exceed £1M in a saver’s lifetime.

Nevertheless, who could argue with the tax-free uplift in the pension as well as the ability for a married couple to pass on, free of Inheritance Tax, up to £2M of their pension pots to their loved ones?

Step 2: Ensure you have enough outside the pension to see you through retirement

When you die you want to minimise non-pension assets above the £325,000 (£650,000 for a couple) death tax threshold.

The aim ought to be to leave your pension intact to give to your heirs while you live on, other potentially taxable assets. People are increasingly using non-pension assets like ISAs to generate retirement income and a growing area is the use of property, through buy-to-let holdings, to provide rental income.

Step 3: Now consider gifting or using “Inheritance Tax-proof” investments

If your pension is well funded and you have sufficient non-pension savings/investments to live on, think about cutting tax by gifting. Either £3,000 per individual or gifts from recurring income to any level, is the most you can give annually with no Inheritance Tax consequences. Above these limits, you need to survive for 7 years for the gift to fall entirely outside of your estate for death tax purposes.

If you do not want to give assets away, certain shares (the AIM market) and other investment schemes related to funding for enterprise are free from Inheritance Tax. As these tend to be higher risk, it is an area of planning where individuals need to seek specialist advice so that they can be completely appreciative of the investment proposition.

If you wish to undertake a review your estate planning to see if the new pension rules, or any of the other existing options, provide you with an opportunity to maximise the amount of assets you leave to those you care about upon death, then please call 01224 581581 to arrange an appointment with one of the James & George Collie Financial Management advisors.

Dilapidations under Commercial Property Leases – Recent Developments

Tuesday, February 2nd, 2016

Prices-Rising

Prudent tenants of commercial property should make provision in their accounts for their anticipated dilapidations liability at the end of their lease. Typically in a commercial lease liability for nearly all repairs and maintenance is passed on to the Tenant. During the lease the Landlord can demand that their Tenant carries out repairs (and in some cases Tenants will in any event carry out repairs and maintenance regularly throughout the lease term) but in many cases the issue of dilapidations is held over until lease end. Under the lease terms, typically the obligation on the Tenant is to carry out the work but very often the Tenant will prefer to make a cash payment to the Landlord – being an amount that is an agreed equivalent of the cost of the repairs required.

For some time, in Scotland, it has been unsettled whether a Landlord’s claim for dilapidations should be based on the cost of the repairs that have not been carried out or the loss in value to the property due to its disrepair. These two separate ways of quantifying damages can produce very different results.

Recently Landlords have been attempting to put the matter beyond doubt by expressly stating in repair clauses that the measure of loss is the cost of repairs (and not loss in capital value) and this very point has been the subject of recent judicial scrutiny.

Two recent court decisions in Scotland (Inner House of the Court of Session) could have repercussions – it now appears to be the case that Tenants will only have to pay the cost of repairs (“dilapidations”) if the Landlord can satisfy the court that it actually intends to carry out those repairs. For a long time some Landlords would routinely collect dilapidations damages payments from their Tenants whether or not the work is actually done, which in most cases generated substantial cash windfalls for Landlords.

In the case of Grove Investments Limited v Cape Building Products Limited, the Landlord sought £10M from their Tenant for dilapidations at the end of a 25 year lease of an industrial building. The Landlord argued that the lease terms allowed them to recover this amount whether or not the work was actually done. The court disagreed and stated that the Tenant was only obliged to meet the Landlord’s actual loss. The court was keen to avoid the Landlord receiving a windfall payment.

However, in the case of @SIPP (Pension Trustees) Limited v Insight Travel Services the court had to consider a repair clause which specifically stated that the measure of loss to the Landlord was the cost of repairs. The Inner House of the Court of Session rejected the Tenant’s argument that such a provision could not be enforced as it was ambiguous and rejected the Tenant’s claim that the measure of loss should be loss in capital value.

This case will be welcomed by Landlords of commercial property as it will bring some comfort that the courts will uphold repair clauses that make it expressly clear that the Landlord is entitled to have its dilapidations claim quantified by reference to the cost of repairs.

As always the devil can be in the detail and these developments demonstrate the need for quality advice and guidance on the terms of the repairing clauses in your commercial lease.

For more information please contact Commercial Property Partner, Richard Shepherd by email at r.shepherd@jgcollie.co.uk