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Is there still an investment opportunity in PCL?

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The broad sweeping reforms to UK Stamp Duty means buyers of properties under GBP1m are set to enjoy reduced tax bills. However, one in 10 London households now face a higher tax bill, rising to one in two in Prime Central London (PCL).

As the dust settles, investors are already wondering what options are still available in PCL, without being faced with eye-watering charges.

Naomi Heaton, CEO of London Central Portfolio (LCP) says: “For some PCL investors, the Autumn Statement will have made for somewhat uncomfortable reading last week. Buyers who had hoped to duck just under the GBP2m mark, avoiding a 7% Stamp Duty hike and Ed Balls threatened Mansion Tax, will be confronted with an additional GBP53,750 bill. On a GBP10m home, there will be a Stamp Duty tag of almost GBP1.14m. There is no doubt they will look at alternative ways of investing in London now.”

In fact, there are already signs of a sea-change: with Private Rented Sector (PRS) investment looking top of the list. In a nutshell, GBP10m spent on one trophy unit would attract 2.5 times more Stamp Duty than it would spread across a portfolio of 8 small units, where the tax charge remains the same as before the reforms. Yields are also better and the diversification achieved through geographical and income spread, invaluable.

However, the PRS is fragmented and labour intensive. Creating and managing a large portfolio can be arduous and risky, encouraging investors to turn to professionally managed investment vehicles, such as property funds. In essence, taking an increasingly ‘commercial’ approach to the residential sector, making it more like a conventional commercial property investment.

Heaton says: “The Chancellor has recognised the importance of the PRS in supporting London as an international centre for finance, culture, education and tourism. He has, quite rightly, left this sector out of previous tax hikes and has now kept the mainstream rental market, under GBP1m, safe from onerous Stamp Duty increases. He is also actively encouraging investment through structured vehicles such as property funds, with exemptions from the new CGT charges on non-resident investors and the ATED charge levied on some corporate wrappers.” 

For foreign investors, coming through a fund is now the only avenue to realise all of these HMRC approved tax savings. For UK investors, some funds are eligible for tax efficient SIPPs and ISAs which are to be given further attractive tax breaks, following the Chancellor’s statement.

Having just listed the shares for their fourth property fund, London Central Apartments II, LCP has already seen a spike in demand from investors now wishing to “get in”, following the recent tax changes. In light of this, LCP are to re-open LCA II for subscriptions in Q1 2015. Shares will be issued at the same NAV, so new investors will not lose out.

LCA II is a five-year fund, projecting an IRR of 12% pa. It has already begun to cherry pick one and two bedroom flats in PCL, to deliver a high performing, quality residential portfolio. The fund provides benefits investors acting on their own do not get – diversification, professional expertise and a series of attractive new tax breaks.

The minimum subscription is GBP85,000, but smaller subscriptions of GBP25,000+ can come from eligible investors through a trustee consolidation scheme.  Investors can also access the fund through SIPPs, SSASs, ISAs and NISAs with no minimum investment restrictions

LCP’s first two funds, closed in 2007 and 2010, have shown 58% and 50% increases respectively in capital value since acquisition. Its third fund, fully invested in December 2013, has already shown a 28% increase. Whilst past performance is not a guide to the future, all LCP funds are on track to achieve their target returns. LCA II is also the only Sharia compliant residential fund available in the UK.

“LCA II ticks all the boxes for investors wanting to access PCL’s Private Rented Sector. It falls outside all the new tax legislation and with its mandate to buy small units, it will benefit from strong price growth as demand intensifies for properties under GBP1m. We are delighted to be reopening our fund to provide unique access to the market for interested investors,” says Heaton.

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