IHT- how to avoid if you have enough wealth

escaped

I was wondering why empty commercial properties in London can't be used for housing? There must be heaps of empty office space after covid encouraged WFH and desk sharing. In the East End many warehouses have been converted into dwellings, even old police stations.

The reason is that many office and commercial premises are not suitable for conversion, large open offices with floors possible 100ft or more in length with windows on the outside walls, no light wells, cannot be converted because you end up with rooms with no windows.

Also the fire and safety rules that govern the construction of these buildings are based on each floor remaining open plan with very few individual offices. One of the last tasks I had when working was organising a change of offices and one of the biggest problems I had was telling some senior manaagers that they could not have individual offices because more senior managers had already been allotted the few we were allowed.

In the few cases where these conversions have taken place, they have not been a success. There is a government initative already to do this, but because a lot of planning regulations wer waived to make it possible (like permitting windowless rooms, the resulting housing is very poor quality and doubts about firesafety have been aired.

The other problem is that the sort of office blocks that have been made available are not town centre ones or in good areas, where the ownrs remain confident of eventuaally getting a commercial tenant but older 1960/70s blocks on industrial estates where tenants find themselves in places, otherwise unoccupied at night, without public transport or easy access to shops or schools and they ahave been an unqualified disaster.
www.investorschronicle.co.uk/content/eabef00d-85d8-548b-992e-e00f1a78f0f5 theippo.co.uk/why-converting-office-space-into-flats-wont-solve-the-housing-crisis/
Here are a couple of useful links

escaped

I was wondering why empty commercial properties in London can't be used for housing? There must be heaps of empty office space after covid encouraged WFH and desk sharing. In the East End many warehouses have been converted into dwellings, even old police stations.

Offices have the wrong layout for housing so it’s often not practical to convert them, old warehouses etc are often listed and converted at great expense.
The other obstacle is planning it’s not easy to change from commercial, it’s easy to change a pub into a Tesco Express but not into residential.

I was wondering why empty commercial properties in London can't be used for housing? There must be heaps of empty office space after covid encouraged WFH and desk sharing. In the East End many warehouses have been converted into dwellings, even old police stations.

I did look at some ONS figures for London, as you say there is a lot of variation because properties are empty for different periods for many reasons

In London Khan has used 34000 as unoccupied dwellings, the ONS highlights 10000+ LA owned dwellings empty of which half are long term empty. Many are going to be major refurbishment, others due for demolition and replacement.

The other 20000+ owner occupied or rented are likely similar proportions of moving in and out, refurbishment and redevelopment. Whether housing association properties are included in the LA figures is not clear,

There is obviously a lot of politics surrounding empty properties, the vast majority are unoccupied for valid reasons, those that are deliberately not used should be taxed or taken over, I doubt that either would make much difference. There is also a lot of unused retail and office space that could be used for housing but planning issues prevent that being done

David49

Monica

All the above you describe could be done but I don’t think it would make any difference they would just pay it or find a way to avoid any tax.

Where did you get the figure of 50,000 properties that sounds an awful lot

I googled it and got a range of all subtly different figures. The highest around 90,000, the lower around 30,000, and decided that 50,000, was good round number to indicate the ball park.

Here is a link for the higher figure www.estateagenttoday.co.uk/features/2024/04/50bn-price-tag-for-londons-empty-homes/. This is a link for the lower figure, but I think the area it covers is more localised www.london.gov.uk/mayor-london-and-westminster-city-council-call-stronger-powers-crack-down-long-term-empty-properties

Monica

All the above you describe could be done but I don’t think it would make any difference they would just pay it or find a way to avoid any tax.

Where did you get the figure of 50,000 properties that sounds an awful lot

David49 There is plenty you can do. Local Authroities in tourist hotspots can increase rates on 2nd homes.

All that is needed is something similar for properties left vacant, for, say, over 2 years. Double the rates, or better still a tax based on the capital vaalue of the property, so that if house prices go up, so does the surchaarge.

All these things are possibly if someone just puts their mind to it and finds a solution. Obviously there will need to be an apeal system, but in case anyone deliberately trashes a flat, or buys a flat and doesn't have bathroom suites fitted then the LA should be able to compulsorily take it over on, say a 5 year lease, do the repairs or install bathroom suites and deduct that cost plus management costs from the rent before sending the balance to the owner.

My ideas for ways of dealing with this problem may not be ideal, and there may be better, but there are solutions. It just needs people determined to find them.

Dinahmo

This is taken from an accountancy forum. If you are sufficiently wealthy you might want to give it a try! Of course, you won't know if you've been successful.

www.accountingweb.co.uk/tax/hmrc-policy/hmrcs-failings-let-family-dodge-ps600k-iht-bill?cm-uuid=2a6474e2-e2c5-44cd-a401-f35626ea191c&utm_medium=email&utm_campaign=AWUKPOTW280824&utm_content=AWUKPOTW280824+CID_9ffecdd46a3b2da3515cece95dad9a89&utm_source=internal_cm&utm_term=Read%20more

This was a case of human error, a mistake was made and the taxpayer got away with it.
We cannot eliminate mistakes we are fallible.

M0nica

David49 If legislation were in place and activated to inhibit people buying property and leaving it empty for years it would bring 50,000 more properties onto the London rental market, it would ease the rental problem. Some owners would decide to sell rather than tenant and manage their properties.

No, obviously IHT doesn't come into play, bit it is an example of how local factors can distort the market in localised areas while not affecting the overall regional market.

The problem is that properties are owned by companies as they are being developed, if they are not sold or rented out there isn’t much can be done.
Not unless you supervise every development and effectively ban any development above a certain size, which would mean the money would go elsewhere. You could tax empty properties, but they would get round that in one way or another, or just pay the tax, overseas billionaires are not UK tax sensitive.

Just to clarify, I can see on this thread that you don't call people names, or even insinuate things about their behaviour or lifestyle, @Doodledog and @Maizie. I don't either, but there were some unpleasant implied comments earlier.

I agree that owning multiple homes should be deterred. It benefits no one except the owner/investor, and it exacerbates the housing situation. I'm not sure I see it as immoral or greedy, however, despite all the sound arguments against it. I find it difficult to pass judgment on individual people for their fortune and their ability to buy additional homes with their hard earned money. It's the system which allows it that is wrong.

I know, Maisie, but if there were prohibitive taxes, whether levied as CT or on sale/death it might make the investments less attractive. It is so wrong that there are people sleeping on the streets at the same time as there are empty houses just accumulating value but not affording shelter.

David49 If legislation were in place and activated to inhibit people buying property and leaving it empty for years it would bring 50,000 more properties onto the London rental market, it would ease the rental problem. Some owners would decide to sell rather than tenant and manage their properties.

No, obviously IHT doesn't come into play, bit it is an example of how local factors can distort the market in localised areas while not affecting the overall regional market.

We have had some form of estate duty since Probate Duty was introduced in 1694 as part of the Stamps Act. This form of tax has gone through many changes, including name changes since inception.

The 1894 Finance Act brought in Estate Duty along with various exemptions. It was a progressive tax and in 1949 the rate on estates over £1m was 80%. obviously this was after the exemptions were taken into account.

So today's IHT seems to be reasonable in comparison.

On the subject of houses, many people chose to buy new or fairly new houses which do not need any work. Others chose to buy old wrecks on which they may spend a lot of money on improvements. It is their choice, one presumably made because they wanted a more interesting house, possible one which would show a greater increase in value.

Doodledog

That is how I see it, David. I don't know about the foreign investors, but I think that there should be regulation to deter anyone from owning houses they don't live in.

Good luck with that one, DD

As to foreign investors, there are hundreds of high end properties in London which remain empty because their foreign owners see them as investment vehicles and rarely, if ever actually live in them...

commonslibrary.parliament.uk/empty-homes-and-overseas-buyers-what-do-we-know/

A few results worth investigating here if people are interested...

duckduckgo.com/?q=empty+foreign+owned+property+in+London&t=chromentp&ia=web

Doodledog

That is how I see it, David. I don't know about the foreign investors, but I think that there should be regulation to deter anyone from owning houses they don't live in.

You can’t stop companies owning property, they do very often make gains, but within companies the offset them other losses.
For foreign investors it’s more a case of hiding money from their own government, often money of questionable origin, gains are not always the main objective.

Even today with tighter regulation there is plenty of dodgy money invested, it gets laundered better.

That is how I see it, David. I don't know about the foreign investors, but I think that there should be regulation to deter anyone from owning houses they don't live in.

M0nica

^If fewer people had the money from inheritance then prices would fall.^

Sorry doodlebug they wouldn't. Inheritance pays no part at all in influencing house prices, because while some first time buyers may have help measured in lower 10s of £000s to get on the ladder, the vast majority of house moves, trading up, moving area etc do not involve inheritance.

London has a special and particular problem of foreign buyers, buying properties as an investment and then leaving them empty. London is seen as a good way of squirreling away money when you live in uncertain times in your own country as many wealthy Chinese, Russion, Arab and other nationalities feel they do. There are between 40-80,000 long term empty properties in London. But outside London this is not a factor in house prices.

Property prices are simply set by supply and demand, demand is higher than supply. It’s simple economics buyers CAN afford to buy, only if they can’t find the money will prices fall. That’s true of ANY commodity.

If demand falls, prices fall down the line, building materials, labour, land prices, in the case of residential, investment is very profitable, it’s the very first choice for your money, historically the return has outstripped any other investment.

The only way prices are going to fall is if they become less attractive,

London properties held by foreigners would be owned by companies, and IHT would not apply, that brings a whole new realm of regulation, with the complex web of companies and holding companies hiding the gains made is very easy.

escaped

You make a good argument there @ Doodledog, I concede that.
However, in their final house no owner gives a monkey's whether the improvements they make will be compensated by a rise in value of the house. You're not going to need it to up-size or to move, because you're dead. Likewise your beneficiaries are unlikely to give a monkey's as to how much they inherit either. You're absolutely correct in saying that tax is about numbers, not about emotions. BUT, and it's a big BUT, when your parents die, it's bad enough dealing with the overwhelming grief, (at any age), without the added of trauma of handing over a wodge of money of your loved ones' money to the government. That is why it is such an unpopular tax. That is why only a small minority are in favour. And from my perspective, that is why I object to people calling others "money grabbing, greedy, uncaring, smug", and any other words they choose to find, when they have never been in that situation. It's spiteful and smacks of envy.

Well you won’t have seen that language from me. I said that on a board where many people are struggling with the withdrawal of the WFP, complaining about the government coming for ‘a pittance’ when there is an allowance of a million pounds was crass. I think that is true. The poster acknowledged that she used the wrong word, and I understand that that is easy to do, and accepted the withdrawal. I was criticising the comment not the poster anyway. I don’t call people names, even when I am called them myself.

I don’t discuss my own circumstances much as they don’t influence my opinions beyond the inevitable. Things are either fair or they’re not. I try very hard to keep emotions out of things, and much as I respect the grief of the bereaved I don’t think that invoking that is fair. We all pay tax throughout our lives and there are no rebates in difficult times.

I mentioned home improvements simply because others are saying that they paid high interest rates, have improved their homes etc, and coming up with all sorts of mitigations, suggesting that they’ve paid almost as much as their house is worth because of them. This is why I rarely talk about my own circumstances on threads like these . I suppose I was trying to show that I am not far removed from the issues, but lesson learnt. Anyway my point is that these things are irrelevant, whether done by me or anyone else. I thought that was clear.

Finally the notion of the ‘politics of envy’ is facile. It is an attempt to silence anyone who suggests that laws should apply to people better off than them (wherever that bar is set). It makes huge assumptions- both about the circumstances and the psychology of those being called envious, usually based on nothing at all.

👍

I'm just thinking, again ...... if IHT were raised to an exorbitant amount in the UK, might that not drive wealthy people to take their money out of the property market here to purchase in say Italy, where the rate is 4%. Or even say Malta or say New Zealand where I believe there is no IHT? But then the very rich won't care anyway, or as has been said, they will find loopholes.

escaped in theory but in practice, generational trusts will most likely be used to protect assets here. I don’t know too much about it….

@ronib thank you. That's good to know they are not exempt.

escaped foreign buyers are liable for inheritance tax if, at the time of their death, property here is valued at £325k plus. Doubtless accountants and lawyers will be used to protect assets. I think there are family trusts that can be set up.

Just a question ..... are London foreign buyers liable for IHT? What I'm asking, is it based on citizenship or on residency?

If fewer people had the money from inheritance then prices would fall.

Sorry doodlebug they wouldn't. Inheritance pays no part at all in influencing house prices, because while some first time buyers may have help measured in lower 10s of £000s to get on the ladder, the vast majority of house moves, trading up, moving area etc do not involve inheritance.

London has a special and particular problem of foreign buyers, buying properties as an investment and then leaving them empty. London is seen as a good way of squirreling away money when you live in uncertain times in your own country as many wealthy Chinese, Russion, Arab and other nationalities feel they do. There are between 40-80,000 long term empty properties in London. But outside London this is not a factor in house prices.