One of our clients recently purchased a property in Weybridge, Surrey; the property consisted of 13 self contained flats. This is not an area we know intimately, but I do know there are many Russians and footballers living in large houses around this area. Another client of ours is selling a property currently through Hamptons at £7.2m which was purchased for £3.9m only a few years ago.
This is a very high end and in demand area, with very different dynamics controlling it than Central London. Only two things control the price of something, one is demand and the other is supply; in Central London the supply is finite and small in area, and the chances of expanding this square footage is very slim due to tight planning restrictions. The demand however comes from 63 different countries in the world, with a large portion of this demand coming from India. This level of demand both internationally and locally will ensure there is a variegated level of demand. This means should demand from one sector dampen, the other sectors are still there to ensure there is upward pressure on prices.
This property in Weybridge was purchased in the recent Allsops auction, and has been done up to a good standard. The rental value of the property is £132,000 and it has a break up value of £2.1m. So, on the surface it looks like an excellent deal, whether you purchase and resell, or buy to hold. There was actually very little information regarding the property, for example floor plans were never done or couldn’t be traced, this is very important as many lenders have a minimum Sq Ft requirement and if the Sq Ft is below this it may prove difficult to sell the individual flats and therefore the breakup value will not be there.
The property was purchased blind, i.e. it was never seen by the purchaser or by ourselves to date, one reason being it is difficult to coordinate with 13 different tenants to arrange one appointment. However this is a bricks and mortar investment, and therefore it is a very forgiving class of investment. There’s a saying: buying a dud property is like having a bad haircut, if you wait long enough it will grow back again.
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I didn’t think this was a dud property, far from it, it turns out this is a very lucrative deal which has been missed in auction, perhaps due to the lack of information and the low density of the area. Though this is a desirable location, it’s mainly so for large detached family houses.
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The client left the conveyancing for this property to his normal lawyer, which is a large well known and established firm in Harrow. In the course of looking at this deal I emailed the lawyer to reconfirm the stamp duty payable on this property, the lawyer emailed back and said it would be 5% as the freehold property is above £1m.
Not so I replied; as according to the government website and previous deals we have done like this only 1% is due on this transaction.
“Due to recent changes in stamp duty, there is now a relief in stamp duty for multiple dwellings.
Purchase of multiple dwellings
Relief is available where a transaction or a number of linked transactions include freehold or leasehold interests in more than one dwelling. Where relief is claimed, the rate of tax charged on the amount paid for the dwellings is set by dividing the amount paid by the number of dwellings. The minimum rate of tax under the relief is 1 per cent.
Example: I buy five houses for £1 million. £1 million divided by five is £200,000. The rate of tax on £200,000 is 1 per cent. The amount of tax due is therefore 1 per cent of £1 million, which is £10,000. “
The information is from the government website: http://www.hmrc.gov.uk/sdlt/calculate/reliefs-exemptions.htm#16
I asked the solicitor to confirm only 1% will be payable; after a few days he replied and stated the client is not purchasing separate flats and is buying the freehold.
To be honest I didn’t quite understand what he meant so I assumed he meant the flats are not on long leases. Assuming this I sent him a further example from the government website again.
This is what I wrote in my email:
By a separate flat I assume you mean long leases have been created?
No leases are required to be drawn as per this example from the government website, further more I have clarified this point with a partner in another firm.
SDLTM29970 – Relief for transfers involving multiple dwellings:
Example 1
The freehold of a new block of 20 flats is purchased for £2.5 million. There is no headlease and none of the flats is subject to a long lease.
The transaction is 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 chargeable consideration divided by the number of dwellings is £125,000. This is below the normal 0% 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.
Even if this was what the solicitor meant, there was still no duty payable.
So after this exchange he finally emailed back:
Thanks for this. Subject to the valuation report confirming individual dwellings we will run with this.
Which is basically him saying, oh cr*p I got this wrong, how do I dig myself out without looking like an idiot!
There is no need for the valuation report to confirm the individual dwellings as the sales particulars confirm this as well as the individual tenancies.
This mistake would have cost the client 4% extra in stamp duty, which in this scenario translates to £44,000 extra. The client assumed a solicitor should know what he is doing. And the solicitor I’m sure didn’t appreciate being corrected by a mere farm boy turned property dealer.
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This is the second time I have come across a solicitor who has missed this legislation and had to be corrected, of course both times they tried to massage themselves out of the situation. Imagine how many times this may have happened without the solicitor or the client realising the situation.
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It pays to have the right advice and to be dealing with professionals who are on top of their game. Even then it’s important to keep an eye on matters as unfortunately it’s not their money which is lost, they get paid the same regardless of how much stamp duty the client pays.
The same can be said with valuers, they often make assumptions and state them to be facts; leaving anyone who challenges them to provide the proof to the contrary. They get paid regardless of whether the deal goes through or not.
Dealing with big firms is not always an insurance, as the service is only as good as the person you happen to be dealing with.
In the above scenario we did not even source this property, but merely guided the investment so that the investor could achieve maximum returns.
The Real Deal
Shepherd’s Bush, London, W12
Purchase Price: £850,000
- A well-proportioned Edwardian terraced house
- Garden
- Can be converted into two flats, subject to planning permission
- Value after conversion would be £1.1m
- Prime Shepherd’s Bush area
- Strong location for future capital growth
- Call us now to reserve!!
Suresh Vagjiani
Sow & Reap
A Property Investment Company
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!Tips of the Week
Always consider the projects which are happening in and around the area you’re investing in, council websites are a useful source of information; this will help to ensure strong capital growth in the future.
A property crash is not like a stock market crash, you won’t lose all your money as the property is real, it cannot disappear. In reality a crash is a temporary decrease in price.
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