Creating a property legacy that gives back more than just returns

Creating a property legacy that gives back more than just returns

Creating a property portfolio is often about much more than money. For many people, it’s increasingly interwoven with long-term family plans, ethical priorities and a desire to enjoy and nurture the properties they buy. Mark Prentice, Head of Banking (Scotland), explores the current trends.

Mark Prentice, Head of Banking, Scotland
Guarantor mortgage

“If history could teach us anything, it would be that property is inextricably linked to civilisation,” said the economist, Ludvig von Mises. And for many high net worth property investors today, that association is more important than ever, so their investments are increasingly about much more than simply making a decent return, important as that is. Property decisions are now also commonly being guided by personal values, with a mixture of almost philanthropic priorities such as preserving our cultural heritage and taking a much more active role in supporting the environment, balanced with lifestyle considerations such as the quality of life afforded by different types of property in different parts of the country.

We recently hosted an event for clients with property specialists Savills at our Edinburgh office, which explored some fascinating trends they saw in the property investment market, including the motivations of many investors. For instance, they also see a growing momentum around creating sustainable property legacies for a family’s long-term future, often embracing heritage projects and buying properties that can be lived in and enjoyed. There is also a strong trend to want to respond to the environmental challenges we all face, as seen in the rise of rural property investments such as forestry and farmland.

Of course, this all needs to be viewed against the backdrop of current political and economic uncertainty in the UK. Since the EU Referendum in 2016, growth in the UK housing market has been fragile – the UK-wide annual house price growth recorded in July 2019 was just 0.7%, compared with 8.2% in 2016. On top of this, research from the Royal Institute of Chartered Surveyors shows that opinions about the UK market since 2016 remain downbeat, creating caution amongst investors.

Scottish Optimism

There does, however, appear to be a more optimistic mood here in Scotland. Indeed, Edinburgh’s property market continues to thrive and has been an excellent location for investment, according to Ben Fox, Head of Residential at Savills in Edinburgh. The city is the UK’s market leader, having seen a 4.4% increase in house price movements in the year up to June 2019. In particular, prime property has seen significant growth, with the sales of properties over £1m increasing by an astonishing 27.6% in that period. Ben believes that Edinburgh’s consistent buoyancy is easily explained by looking out of the window – a beautiful, historic capital and a popular tourist destination with a thriving hub of technological and financial services. From my seat in Charlotte Square, it is hard to disagree.

Ben also pointed out that high-value property is spreading beyond traditional areas such as Barnton, Stockbridge and Morningside, with areas such as Hillside attracting a lot of interest, partly through the redevelopment of the nearby St James shopping centre and the expansion of the tram network.

Beyond Buy-to-let

Buy-to-let is frequently a traditional cornerstone strategy for creating a property legacy. According to Charles McCosh, Head of Lettings at Savills in Edinburgh, the Scottish market remains as relatively buoyant for rental as it does for property sales, with national rents up 4.1% year on year. Edinburgh has shown growing strength with a 3.6% rise, and the time to let properties has been falling with 67% now being let in less than a month.

But not every property investor looks to the city – and there are a wide range of potential incentives for those wishing to have a rural element to their portfolio, which Evelyn Channing, Head of Rural Agency in Scotland for Savills shared with us. A clear advantage, she described, is the difference between property tax for rural and urban properties. For example, a property worth £2.2m in Edinburgh’s city centre (with an LBTT effective tax rate of 10.1%) would incur a tax bill of £222,350. By contrast, a rural property selling for the same amount (with an LBTT effective tax rate of 4.47%) might “only” pay £98,500 in tax, where commercial rates apply – for example where the property includes an active farm.

The lure of forests and farms

Evelyn added that there can also be significant inheritance tax benefits in purchasing farmland, as long as farming operations continue, and these can be managed through sub-contracting. She also has had the pleasure of helping clients with the acquisition of historic castles and mansions dotted around the Scottish countryside. These are often bought for families to live in, while also safeguarding these estates for the future.

But one of the greatest areas of interest for those creating a property legacy at the moment is not in buildings at all but in land, with timber prices, tax incentives and environmental concerns driving a significant growth in forestry. Evelyn pointed to four recent estate sales in which she had been involved. All attracted a wide range of interest in terms of farming, sporting use, amenity/lifestyle and renewables but, in all four cases, the top bids came from forestry investors.

So there is lots to think about. And while, at Hampden & Co, my colleagues and I do not offer advice on property or tax affairs, we do help many clients to finance the development of their property legacy. By offering a professional relationship, our private bankers are able to offer tailored solutions that can take into account not just an individual’s financial circumstances – however complex they may be - but also their broader values and priorities.

See also The Hampden & Co Property Finance Review 2019, in association with The Times.