Asset Classes 5 - Property (direct) Flashcards
Advantages of property investment?
- Low volatility
- Inflation hedge
Differences between residential and commercial property?
(in terms of tenancies, repairs & returns)
- Tenancies - Residential short, Commercial long term >10 years
- Repairs - Residential=landlord, Commercial=tenant
- Returns - Residential - income and capital appreciation, Commercial - mainly income
3 Key Economic Factors affecting property investments?
- position in the cycle at purchase,
- GDP growth
- inflation (in this order)
Best and worst economic conditions for property investments?
- Best scenario – high-growth, low-inflation stage of the economic cycle associated with the non-inflationary consistent expansion (NICE) era.
- Worst scenario – high-inflation, low-growth (stagflation) stage
How long are commercial property leases and which sectors have the highest yields?
- Typically let on long leases of up to 25 years, with three- or five-year rent reviews.
- Offices, factories and warehouses tend to produce the highest yields in the property sector, and retail typically produces the lowest yields.
What is commonhold?
Involves the indefinite freehold tenure of part of a multi-occupancy building (typically a flat) with shared ownership of and responsibility for common areas and services.
What happens to REIT prices when investors are cautious?
Discount to NAV increases
Rental yield formula?
Rental yield (%) = Gross rent − Expenses / Cost of propert y, including purchase costs
How is residential property taxed?
in terms of income and offsetting
- rental income taxed as business income (treated as a single business regardless of no. of properties).
- Investors can offset losses from one property against profits from another.
What is the tax free allowance for renting a room in your own home?
Up to £7,500 a year for the 2024–25 tax year.
What are AIA and WDA with regard to qualifying plant and machinery and fixtures and fittings for commercial property?
- AIA (annual investment allowance) provides 100% tax relief on assets that are kept for use i.e. plant and machinery
- WDA (writing down allowance), the owner is allowed to deduct a certain percentage of the cost of an item from their profits each year (for items not eligible for AIA).
What is Agricultural Property Relief and how is it calculated?
in terms of tax
- inheritance tax (IHT) relief for agricultural property
- it includes agricultural land, growing crops and farm building but it does not include animals or equipment
- APR is claimed at two rates.
1) 100% for owner-occupied farms, land that is let on a grazing licence, and property that is let on a tenancy beginning on, or after, 1 September 1995.
2) The relief is 50% for interest of landlords in most other let farmland.
- The property must have been occupied by the donor for agricultural purposes for the previous two years or have been owned by the donor for seven years and occupied by someone else for agricultural purposes at that time.
Which investments does overseas-investment affect the most: commercial or residential property?
Commercial property can be vulnerable to influences on overseas investment to a greater extent than residential property
What is the allowance for paying 0% Stamp Duty
£250,000
What are the thresholds for 5% Stamp Duty?
The next £675,000 (£250,001 to £925,000)
What are the thresholds for 10% & 12 % Stamp Duty?
10% = £925,001 to £1.5 million
12% = > £1.5m
How much stamp duty do corporates and non-natural persons pay? (including CISs and partnerships)
15% over £500,000
What is the additional stamp duty for second homes?
3%
What is the additional stamp duty for non-uk residents?
2%
How is non-residential stamp duty calculated?
the amount of SDLT depends on the purchase price of the lease (the lease premium) and the value of the annual rent paid (the net present value (NPV)
What are the thresholds for commercial SDLT?
Up to £150,000 - Zero
The next £100,000 (the portion from £150,001 to £250,000) = 2%
The remaining amount (the portion above £250,000) = 5%
What three factors does the Association of Real Estate Funds’ quality mark include with regard to property funds?
- Governance of the fund.
- Operation of the fund.
- Unit dealing and performance reporting.
What is the formula for the initial yield on a property?
Initial yield (%) = Current annual rent / Value of property, including purchase costs
What is the formula for the Capitalization (CAP) rate?
Cap rate = Net operating income / Sales price or value of propert y
