Lookig for some advice regards my Mum's property portfolio

Big_Zee

Hi,

I am looking for some general advice for my Mum, on how she should manage a fairly large property portfolio she has inherited. I realise that she should go and speak to a professional financial advisor, but so far she has put this off, so I am hoping to gain atleast a bit of general advise here.

My Mum inherited 10 properties (3 bed Semi's) in Worksop about 15 years ago. They have no mortgage on them and they are worth approximately £1 million in total (approx £100K each).

They are currently all in her name and provide a rental income of approximately £40,000 per year - so a gross yield of about 4%. This provides her sole income.

On top of this she also has the house she lives in - this is worth approx £300K and she has a small mortgage on it of £30K, which she is due to pay off next year.

A house has recently come on the market that she is considering purchasing in the same village in which she lives. The house will cost approx £380K and it needs approx £150K worth of work doing on it to make it livable. So in total to make this purchase she would need around £550K to cover legal fees and stamp etc.

As she has minimal cash assets, the only way of finacing this would be to either:

A/. Sell some of her property

B/. Gain mortgages on her current property to the amount of around £550K.

There are several things that I am concerned about

1/. If she sold her rental property to finance the new property, would she be subject to CGT at 28% ?

2/. Her current rental yield on her property in worksop seems fairly low (4%) - considering that these are low value properties (£100K each) maintainance costs can be proportionaly high - IE to maintaining a low value 3 bed semi is not much different cost wise to maintaining a high value 3 bed semi.

So, would she be better off keeping the 3 bed semi she is currently living in and renting that out, rather than selling 3 of the worksop properties ( in total the same value ).

This would seem to make sense, however I assume that the rental poprties she owns would be subject to CGT if sold, but her current property would not - so if this is the case then maybe it would not make financial sense.

3/. Would she be (or have been) better off putting all the rental property into a registered company and then drawing a salary (or dividend) from the company?

4/. Long term - irrespective of the potential purchase of this new house, do you have any advise on how best she should manage her property portfolio?

Many thanks for your help in advance.

tawse57

She really needs to talk to a good accountant / financial adviser.

How she finds one is, I guess, down to getting a recommendation from someone. What part of the World do you live in?

Big_Zee

tawse57 wrote: »

She really needs to talk to a good accountant / financial adviser.

How she finds one is, I guess, down to getting a recommendation from someone. What part of the World do you live in?

She lives in Leicestershire.

I've tried to get her to talk to one as I can only advise her on the best of my knowledge - which is only really what I know from reading and the internet etc.

I'm going to show her this discussion thread in the hope that it may make her realise that she really needs to seek professional advise - at the moment she just seems to think that it is going to cost her money for no benifit!

Thanks

lincroft1710

If her gross income is £40K pa from 10 properties, then that means they're each letting at just over £325 pcm which is low. Mortgaging the properties to raise £550K is not an option, over 20 years at a zero rate of interest would be £27,500 pa, which when added to repair costs, income tax, voids, safety checks etc, would leave her probably in debt!

Good financial advice is an absolute must in this case.

Ankatden

If she remortgaged her existing house and moved into the other one she would have 3 years to sell existing before becoming liable to CGT.

IF she remortaged an element of her existing portfolio BUT used the proceeds from this to buy and refurbish the new property and let it out as a tenancy then the costs associated with the loan would be allowable against tax.

Seeking Independent Financial advice is important both in terms of best loans and also for Tax purposes.

clutton_2

i can recommend an excellent property-specialist accountant - i am a LL of 11 years and not wishing to publish my own personal details, i can absolutely say that she she HAS to talk to a good accountant.... and quickly.....

if she sells rental properties she will have to pay CGT tax at 28% or 40% (depending on her current tax situation) on the difference between the value when she inherited and the price she gets for their sale... this will be significant as she has owned them for such a long time...

Selling one property per year (to take advantage of the CGT £10k annual allowance) might make sense..

However, the more property she sells, the less her income, and therefore the less she may be able to borrow to do other things with

With respect, if she has grown up kids, why is she thinking of upsizing by so much in middle life - and contemplating getting into so much new debt in order to do so ?

Since she has no income other than the BTL income i doubt she will get any sort of decent-sized mortgage for another residential property - Some lenders like to see "proper income" as well as investment income.. which is how they view BTL income....

She should have had a good property-tax accountant years and years ago.... she needs good advice before embarking on this...

A good accountant's fees will more than cover the amount of tax he saves

SouthCoast

And also advice on Inheritance Tax planning.

theartfullodger

Given the size of the portfolio, for safety's sake I'd suggest talking to two or more IFAs and the seeing (hopefully there will be..) some similarities of advice...

These guys are Independent,.... but usually have their favourite companies etc...

Cheers!

Lodger

Big_Zee

Thanks for all your advise.

I've been trying to get her to see a financial advisor for years as I think anyone however savvy would need professional advise on how to manage such assests (she also has some agricultural land as well as shares). She is 64 and has very little understanding of anything financial. I am going to make her read this post so she can hopefully she definately needs professional advise.

If anyone else can add anything, hopefully it may make her see sense.

Thanks

clutton_2

i have sent you a private message with the name of a good accountant