Time to kick back

[bil8999]

Hi Again

Been thinking about spending more time at holiday home.

We turnover £150k/year rent, outgoings say 5%, no borrowings, instead of selling, if we were to lease the properties to our only daughter, what would you consider to be a fair price, that way if a property were to come vacant, the loss of rent would come out of her turnover, she would have to be pro active, like I have been for the past 36 years in keeping them occupied.

 Or is it  bad idea,

Don't like using agents as I have always liked being hands on.

This started off when someone I worked for some 36 years ago couldn't pay so I ended up with a property as payment which I still own today, plus a few more.  

I have a guy who works with me in my building business who would jump at the chance, but feel I should offer it to my daughter first.

Any thoughts?

    

[Richlist]

I don't think it's a matter of a 'fair price'.

Surely you would want a reasonable return on your (considerable) investment and your daughter would want a reasonable income from the effort expended in running the holiday homes.

If the business can produce a level of return to meet both those criteria, after all expenses have been paid/ put aside,then it's a plan worth looking at.

The devil of course will be in the detail of the contract. You infer that you might take a fixed percentage of profits and your daughter would take all the risks.....bad tenants, damage, voids etc.

I think the contract will need to cover all eventualities e.g. good years, bad years, tax, reserve funds, maintenance, repairs, replacements, who makes decisions on levels of rents, deposits, who to employ, what suppliers to use etc. 

Lots to think about but with high potential profits it could work for everyone.

[bil8999]

I don't think it's a matter of a 'fair price'.

Surely you would want a reasonable return on your (considerable) investment and your daughter would want a reasonable income from the effort expended in running the holiday homes.

If the business can produce a level of return to meet both those criteria, after all expenses have been paid/ put aside,then it's a plan worth looking at.

The devil of course will be in the detail of the contract. You infer that you might take a fixed percentage of profits and your daughter would take all the risks.....bad tenants, damage, voids etc.

I think the contract will need to cover all eventualities e.g. good years, bad years, tax, reserve funds, maintenance, repairs, replacements, who makes decisions on levels of rents, deposits, who to employ, what suppliers to use etc. 

Lots to think about but with high potential profits it could work for everyone.

Hi RL

Thanks for the reply, sorry if I confused you, they are not holiday lets, just long term lets, we fortunately don't get many problems, over the last 5 years only had 1 months voids in total, I would want her to make her own decisions, she could use my firm to complete any repairs/ maintenance, at a reasonable charge.

I was thinking of giving her 20% of the total income to cover everything, that's 30k per year, so it would be in her interest to keep the tenants happy, and work at expanding the business.

I still feel that this would be a better way forward rather than selling and paying the CGT. Most of the properties I paid no more than a few thousand for but are now worth 12 times that amount, so the tax would be considerable.

Would be good to hear what others have done in a similar situation.

Any thoughts?

    

[Melboy]

On  a much smaller scale I signed one of my properties over to my Daughter 3 years ago for Inheritance Tax purposes.  7 year rule still current. 4 years for me to survive the term.  My Daughter takes the rent and declares the taxation and I cover the repairs  (minimal ) and management.  There is an express contract condition that the property cannot be sold on etc. and my Daughter wouldn't do this anyway as we are both looking to the future to house one of the Grandchildren at some point in his life.

All of this was dealt through my Solicitor so all legal as far as I am concerned.

[Richlist]

Bil8999 

A few points....

1.  If you don't pay CGT by selling now (@ 28%) your beneficiaries are likely to pay IHT (@ 40%) unless your circumstances or tax planning have been organised appropriately.

2. It's not a good idea to think that the historical level of return and overall performance of your portfolio is likely to continue on into the future i.e. past performance is no indication of future returns. You should instead plan for longer voids, higher running costs, lower profits and greater taxation.

3. You are presumably aware of the following major tax changes....                     1) No more 10% wear and tear allowance on fully furnished  2) The gradual introduction (2016 -2020) of tax on rental income being levied on gross income, not after deduction of expenses. 3) Significant increase of 3% sdlt on 2nd home purchases. The effect is likely to greatly reduce the number of investment buyers. There are also a number of minor tax changes all of which you need to take into account.

4. Whilst providing your daughter with 20% of current income may sound generous, it may not seem so good if income were halved and your tax bill significantly higher.

 

[bil8999]

On  a much smaller scale I signed one of my properties over to my Daughter 3 years ago for Inheritance Tax purposes.  7 year rule still current. 4 years for me to survive the term.  My Daughter takes the rent and declares the taxation and I cover the repairs  (minimal ) and management.  There is an express contract condition that the property cannot be sold on etc. and my Daughter wouldn't do this anyway as we are both looking to the future to house one of the Grandchildren at some point in his life.

All of this was dealt through my Solicitor so all legal as far as I am concerned.

Thanks, may have to give that route some thought

[bil8999]

Bil8999 

A few points....

1.  If you don't pay CGT by selling now (@ 28%) your beneficiaries are likely to pay IHT (@ 40%) unless your circumstances or tax planning have been organised appropriately.

2. It's not a good idea to think that the historical level of return and overall performance of your portfolio is likely to continue on into the future i.e. past performance is no indication of future returns. You should instead plan for longer voids, higher running costs, lower profits and greater taxation.

3. You are presumably aware of the following major tax changes....                     1) No more 10% wear and tear allowance on fully furnished  2) The gradual introduction (2016 -2020) of tax on rental income being levied on gross income, not after deduction of expenses. 3) Significant increase of 3% sdlt on 2nd home purchases. The effect is likely to greatly reduce the number of investment buyers. There are also a number of minor tax changes all of which you need to take into account.

4. Whilst providing your daughter with 20% of current income may sound generous, it may not seem so good if income were halved and your tax bill significantly higher.

Hi RL

Points taken on board, but if you sell and invest the proceeds the return is still poor at the moment, for the first time in my working life I will have to seek some financial advice.

If I gift the properties into my daughters name, I assume I will still have to pay the CGT.

Unless anyone out there knows of an alternative .

Regards