Mattioli Woods PLC - Financial Planning Newsletter

Since the turn of the century the UK population has risen by 8 million people (*UK population estimates 1960 - 2019, Office for National Statistics 1 ). With a vast shortage in council housing and available homes in the market - coupled with a government target to build over 300,000 2 homes each year well into the mid-2020’s - those who can afford to invest in additional properties are doing so, not just with investment properties to rent out but also on ‘second’ or ‘holiday’ homes too. The increase in use of technology-driven property lettings companies, such as Airbnb and Booking. com, have made it more attractive and far easier for second homeowners to generate income from second homes. According to the website propertyreporter.co.uk , data issued by lettings agency Houst, shows that the UK’s number of second homes rose to an all-time high of 495,000 in 2018/19. A rise of 30% from the number previously recorded in 2013/14. 3 Steadily rising house prices alongside the current low interest rates may be an indication of the rise. According to figures from the Office for National Statistics, during 2020 UK house prices increased by 8.5%. 4 In 2020, the Chancellor provided a stamp duty land tax holiday for buyers in England and Northern Ireland to help drive the housing demand. The Welsh However, reliable tenants can be hard to find and a letting agency may need to be instructed to take care of the administration and relieve the main concerns of letting out the property. These could range from rental payments in arrears, the cost of upkeep and general maintenance, the re-decoration costs between tenants or possible legal fees if eviction is a consideration. There are many things to consider whether it is right for you. Certain expenses can be reclaimed, such as landlord insurance costs, gardeners, and cleaners’ wages (as part of the rental agreement), letting agents’ fees, legal fees for lets of a year or less and even accountants’ fees. The facets of managing your second home, if letting it out, will need to be weighed up versus the costs of instructing another party to manage the property on your behalf. If you do decide to buy a second home, you must also factor in solicitors’ fees, the increased stamp duty on a second property and the costs of running another home if you are utilising it yourself. Overall, it could push up the total value of your estate if the value of the equity increases, or you receive income, which may cause future inheritance tax implications. Should you sell the property, depending on how much it has increased in value over the term, you may be liable for capital gains tax charges on the profit. Unlike with your main home, you will usually face a capital gains tax (CGT) bill when selling a buy-to-let property or second home. In the UK, you pay higher rates of CGT on residential property than other assets. Profits that fall within the basic-rate tax band are taxed at 18% on gains made when selling and Scottish Governments also brought in similar incentives; in Wales a land transaction tax holiday was introduced although with no effect to second/ additional homes. In Scotland, there was also a temporary land and buildings transaction tax holiday, which ended on 31 March 2021. With rural homes becoming more attractive to owners escaping urban conurbations, the tax cuts – coupled with the lowest interest rates the UK has ever seen – is making buying property attractive to investors. Bricks and mortar are a tangible asset, and a second home could provide a variety of options for an investor. It could be a holiday bolthole for family or rented out as a holiday let; dependent on location it could also provide a home for children while studying at university or deliver a monthly rental income from tenants. According to a report by the Land Registry, 5 the average UK residential property price (including flats) was £57,726 in June 1990, and the equivalent figure for June 2020 was £234,947. So, as we can see, a second home is often viewed as an attractive asset, offering a regular return on investment, a possible additional income, as well as potential capital appreciation over the time of ownership. property, while any profits falling into the higher and additional-rate tax bands are taxed at 28%, so we recommend you check with your accountant or tax adviser. It is important to bear in mind that if you need to get hold of some money quickly, property is an illiquid asset, and while it may be viewed as an attractive asset in terms of potential gains and return, it is not readily accessible like cash and other investment types, often taking several months to sell your property before you can realise your cash. However, the timing might not give best value and the last thing you want to be is asset rich and cash poor when you need cash. Sources 1. https://www.ons.gov.uk/economy/inflationandpriceindices/articles/ priceseconomicanalysisquarterly/january2021 2. https://www.propertyreporter.co.uk/property/number-of-second- homes-sees-30-climb-in-five-years.html 3. https://www.gov.uk/government/news/government-announces-new- housing-measures 4. https://landregistry.data.gov.uk/app/ukhpi 5. https://www.theguardian.com/business/ng-interactive/2021/mar/31/ uk-housing-crisis-how-did-owning-a-home-become-unaffordable Second homes Are they a good investment? by Matthew O’Hara 16 17 OF FACTS As big sports lovers it was natural to have a sports sponsorship and in 2016 we signed a three-year sponsorship of rugby giants Leicester Tigers. In 2020 we agreed a five-year deal with the team that saw the stadium rebranded to Mattioli Woods Welford Road.