Flat Conversion Relief
An excellent highly tax efficient investment opportunity
There is a new government initiative that looks to give tax rebates on investments on the transformation of unused space above shops into flats, particularly in urban areas of the UK.
Affordable rented property in our towns and cities is becoming particularly hard to come by hence the Government devising incentives to increase the amount of affordable housing in our country’s densely populated areas. It has been estimated that England needs to build an extra 23,000 affordable homes a year and this little-known government initiative aims to bring about the changes required to allow young working professionals the opportunity to live in accommodation at an affordable price in some of the most sought after areas of the UK.
However, in order to qualify for the available tax breaks that make this investment such an appealing option the property being converted must have been built before 1980 and have no more than four storeys above the ground floor. Furthermore, the ground floor must be used for business and the upper floors must have been unoccupied or used for storage in the year before conversion work begins. It is this space above the shop floor which is not being efficiently utilised which is renovated to create flats and the full cost of conversion is allowable for tax relief of up to 40% providing the property is held for seven years from completion through letting the property out to young professionals or other first time buyers looking to break onto the property ladder that do not have the resources to purchase their own home.
This option will be perceived by many as an opportunity available to only to the super rich, yet investors can benefit from the project with capital of just £25,000 without the hassle of managing and developing the properties themselves. Despite the appealing tax breaks some investors are reluctant to rush in because the money invested is tied up for a lengthy period of time. Nevertheless, despite investors having to wait approximately 10 years before the converted property is eventually sold due to it taking up to three years for the conversion throughout this time the value of the property is accumulating a significant amount of profit as house prices continue to rise at approximately 5% per annum. The money generated from the eventual sale of the property will then be shared amongst those who initially invested money into the regeneration of the building earning the financier of the project a significant return on their initial investment.
Simple Worked Example
INITIAL INVESTMENT £25,000
Tax Relief @ 40%* £10,000
Borrowing (Loan taken out by investment
property company, not the investor) + £30,000
Total property assets = £55,000
Assumed growth for period + £35,000
TOTAL VALUE = £90,000
Less loan - £30,000
Capital to investor = £60,000
Plus tax relief re-paid initially to investor + £10,000*
TOTAL CAPITAL TO INVESTOR = £70,000
(Assuming 5% p.a. growth in the property value over 10 years and tax relief* is received in the first three years, then the £25,000 investment could generate a return of over 12% p.a.)
NB...The above worked example is for illustrative purposes only, and is not a forecast or a guide to expected returns. It is provided in order to show the mechanics of how the investment operates and is in a simplified form.
This example reveals the substantial return an investor can expect to receive from investing the minimum capital of £25,000 is approximately £70,000 which is a significant return on the initial investment.
This investment is suitable for anyone looking for a substantial return on their money invested and is an appealing option to anybody with a reasonable amount of capital available them.
By utilising the services of a public limited company with huge experience in property development / management this opportunity combines the low risk o ownership in residential property with the added advantage of substantial tax savings utilising capital allowance to receive a rebate of income tax.
The properties are expected to be sold in no more than ten years from the initial investment being made and any investor who is willing to wait for this prolonged period of time to reap the benefits of this project are likely to be highly satisfied with the profit margin made which is far superior to other options that are open to somebody with capital to invest.
Ashton Hoyle propose that this opportunity could form part of an individuals retirement planning strategy were the already understood highly tax efficient pension contract could be combined with an investment such as this to deliver a more accessible, flexible and diversified retirement portfolio.
Our opinion should not detract from the fact that this is an excellent stand alone residential property investment that is a viable and potentially more profitable investment than direct residential property investment.
This opportunity incorporates a ‘simple hands off’ approach to residential property whereby a successful property investor takes full responsibility of regenerating the property you have invested. It is in their best interest to refurbish the property to a luxurious standard as they will be regaining the money they have invested over a seven year period through the letting of this property. It is then at the end of this period the property is then sold and the money made from the sale returns to the initial investor which is certain to be substantially more than what the initial investment sum was. This therefore makes it a very low risk investment project yet with significantly rate of success that would be attractive to anybody looking for medium to long-term investment.
For more information please contact us by whatever means are convenient and we will be only too pleased to present this superb opportunity to you.
