13 August 2020

Expert Advice on Taxation and Succession when Buying Prime London Properties – Kelly Noel-Smith speaks to Justin Mason

Private Client Partner, Kelly Noel-Smith was recently interviewed by Justin Mason of Justin Mason Valuation Consultancy, to share her expertise and insights into taxation, wealth management and the current property market.

For over 20 years, Kelly has provided tax, family governance and succession advice to her clients, which include individuals, families and family offices.

Read the full interview below.

What are the three main reasons why a wealthy overseas family would spend between £3 million - £15 million on a prime central London property?

London is a great central meeting spot for global families, it’s still a world leader in its provision of professional services, and it’s beautiful. A prime home places you in the centre of London’s monuments and green spaces, theatres and restaurants.

Who advises wealthy families on buying properties and who is in their professional team when they come here?

Pre-lockdown, several of my colleagues – the private client and property team partners – regularly spent significant time in Asia working collaboratively with the property agents we know there to help clients buy off-plan in London. We are now dealing with the same process in innovative ways, making the most of digital technology.

My international clients tend to find properties through their family offices who often use their own search agents, as good property isn't always publicly marketed. I'm part of the wealth planning team at Forsters. On the property side of Forsters, key players would be Lucy Barber and Chris Myers, both heads of our residential property team, and Henry Cecil in our rural property team.

What are the main issues for wealth planning when looking at these properties?

I think there are four key questions to explore with clients. First would be how are you going to hold the property, as the tax depends on the structure; second, how you are going to fund it; third, how do you protect it (I’m thinking in the context of a possible divorce); and the fourth would be how do you want to deal with the property on death.

When your clients want to pass properties on to the next generation, what are the main issues they need to consider?

Tax planning is key, but it should never be the only driver. So, whilst passing property onto the second generation can reduce the inheritance tax burden on the estate of the first generation, this should never be at the expense of the security and peace of mind of the second spouse of the first generation to die. Thought always needs to be given to family dynamics. Parents' unequal distribution of property between their children can often spark difficulties. So, it’s important to think carefully about three issues – the surviving spouse, the family dynamics, and the tax planning which operates within that context.

Tax only relates to financial value; there are so many other values to consider – sentimental, status, equal – and sometimes unequal – treatment of family members. It's not for the advisors to judge.

How does London compare with other centres of wealth? Is there a move to buy in the countryside?

London is a central meeting spot and is a world leader in its provision of financial services, such as lawyers, agents and valuers. Also, its cultural offerings remain a powerful magnet. Most of my international client base continues to buy prime property in London’s West End. But my firm’s property department is noticing a shift towards UK based clients buying in the countryside.

I think there is a realisation that since lockdown, working from home is going to become the new normal. You don’t need to live in a commuter belt to do that. There is a perceptible interest, I think, in a move to the countryside and much more of a focus on sustainable living, with people wanting to buy local organic produce from farmers markets rather than from the big chain suppliers. It’s all part of a shift towards sustainability brought into sharper focus by COVID-19 and climate change.

How has the current situation affected your clients’ interest in buying prime property in London?

The pandemic has of course slowed the market, but we are beginning to see signs of the pent-up demand for property being expressed in viewings and some sales. Even before lockdown there were some significant issues like Brexit and the higher SDLT (Stamp Duty Land Tax) (with a recent welcome temporary reduction to the rates from 8 July to 31 March 2021), as well as changes in the property holding tax and compliance regimes. But I do believe that limited London prime property stock is an enduring investment, like gold, so it occupies a market that is always going to survive. In my view, it will bounce back.

How do your wealthy clients keep an eye on the value of their properties?

Someone with their finger on the pulse of the property market is a key part of a family’s advisory team. The tax planning I do with property requires good and reliable valuations, not just current market valuations but often at specific key dates: April 2013 when ATED was introduced; April 2015 when non-resident owners were brought into charge; dates of death, gifts, liquidation of the company owning the property. That’s how I would say people keep their eye on things, through their advisors proactively telling them about changes to the tax regime and with proper valuations taken whenever necessary to establish the value at a relevant date.

If you had between £3 and £15 million to spend, what property would you buy?

I would like just £4 million, please, to buy two houses – a period house in Suffolk for peace and quiet, and a flat in the Barbican for the City views and access to everything that London has to offer.

Kelly Noel-Smith is a Partner in the Private Client team.

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