For me property is like peeling an onion, in that there is something always new to learn and only after peeling off one layer you get to know whatʼs underneath another. It is also true dealing in property sometimes makes you cry in frustration too!
A few years ago I was negotiating the purchase of a block of six flats in for £1.1m. The stamp duty on this would at that time have been 4% thus amounting to £44,000.
In effect we were purchasing six flats which happened to be held under two freehold titles. If we had bought them individually the duty would be £11,000. So there was a big difference between the two.
In this scenario the sellerʼs solicitors were happy to sell us six leases and two freeholds. So from purchasing two titles we were now buying eight titles. Using this method our buyer ended up pay only 1% in stamp duty as these were all below the £250,000 threshold. Both the lawyers were happy with this.
We have recently done one were we purchased one freehold title with three self contained flats. This was purchased at £726,000 at auction, hence I expected to pay 4% on this amount as it was one freehold title.
I was pleasantly surprised when the solicitor, after the transaction was completed, said we were only liable to pay 1% which is the minimum you must pay, which amounts to a saving of £21,780.
The reason for this is that apparently the guidelines have recently been changed and now a freehold block comprising of individual dwellings is only liable for the rate which would be applied to the average value of the dwelling.
For example if the freehold of a new block of 20 flats is purchased for £2.5 million, the transaction is classed as a relevant transaction for the purposes of the relief as it involves the acquisition of more than one dwelling – i.e. the 20 flats. The freehold is treated as if it were interests in the individual dwellings. The chargeable consideration divided by the number of dwellings is £125,000. This is below the normal 0 percent SDLT threshold but the minimum rate of tax under the relief is 1% The tax due is therefore 1% of £2.5 million = £25,000.
There is a lot of information on the HMRC site regarding stamp duty. In fact a client of ours was very surprised when he phoned the HMRC stamp duty department and they guided him on how to get around paying stamp duty on two flats he had just converted in a freehold house. And this is all the while whilst his solicitor was telling him he had to pay and there is no way out. One would expect their solicitor to look after the clientʼs interest. Generally their aim is to protect themselves from any compliance issues.
I am doubtful if one of these cheap conveyancing firms would have picked this saving out, as you need a competent lawyer who keeps up to date with current legislation, and many of these firms have issues even regarding basic administration. We have had a completion this Friday after a four month delay primarily on the side of the buyers solicitorʼs which was one of these ʻfastʼ mass conveyancing firms.
Ordinarily solicitors who don’t inspect files too closely may have let this one slip, losing a savings of over £20,000, a year’s wages for many. With property transactions there are fast conveyancing firms on the market but you get what you pay for, at the rate these companies charge you cannot afford a qualified professional to look at your case.
Our focus this year is to source blocks for groups of investors. This year you will see good opportunities coming up on the market, more so at the higher end. To capitalise on this opportunity you need to have the ground in place so you’re poised to strike when the opportunity presents itself. Call us to see how we can help.
The Real Deal
Real life scenarios from the street
A Lesson In Emotions
As part of our focus this year we are aiming to offer slightly larger deals, at around the £1m mark, to our investors. With the idea being that the investors club together and buy in a group in order to have access to these kinds of deals.
Prior to Christmas we saw a rarely available freehold block in Victoria, the property was about two mins walk from Victoria station, and backing onto Eccleston Sq.
It comprised of 1765 sq ft and by doing a rear extension and a loft conversion you would have added another 450sq ft giving you about 2200 sq ft. As these properties hardly come on the market the end price is thought to be well above £2m. £1000 per sq ft was a good guide line. The works would have cost no more than £250k.
We were offered this property at £1.25m. And the interesting point is it was being sold by an investor who was ‘flipping‘ the property. This mean she had picked it up for even less and was selling it on for a quick profit rather than doing all the work.
To be frank I had a psychological issue with taking somebody else’s leftovers. It’s a case of someone having got there first which is off-putting, after all everything said and done we are all still driven by emotions rather than logic and this was my hang up. This was clearly a good buy. If we apply a 50% loan this means we put down £750,000, the return will be £500,000 over a one year period.
The contract was already out on this property, but being an investor selling time was an important consideration so whilst the other party were still doing the paperwork we were offered this block if we were prepared to do an attended exchange. This would mean we attend the solicitor’s office and exchange there and then giving very little time to the other buyer to exchange.
The seller was loath to send a contract out because this would have upset the current buyer perhaps unnecessarily.
Christmas came and went, and I made a decision to propose this to a group of buyers who were ready to purchase. They agreed to go for the block on the basis of our reports. This was on the Friday evening, however by Monday the property had gone!
But this is the nature of the beast, a small percentage will always get away. The important thing to ensure is that you have the right structure and funding in place. Properties from time to time will escape your grasp. But our group of investors are now well poised to strike on the next one.
One of main reasons for the delay in making the decision on this one was that I was so hung up on the fact that the current owner was flipping this one on at a profit at our expense. In hind sight it should not be have even been a consideration, when looking at the deal as long as the numbers stacked up we should have gone for this.
Funnily enough the current buyer also wants to resell on with a quick profit. This shows the liquidity and demand for properties in this location.
Suresh Vagjiani
Managing Director
Sow & Reap
A Property Investment & Financing company
