I apologise; I’m going to have to start this article with a swear word… Brexit. If like me you are already fed up with continual post-mortems on what went wrong, who is to blame and how we got ourselves into this mess, then please forgive me for even raising the subject. However, Brexit is, allegedly, impacting on our economy even before the UK Government has invoked Article 50 to actually leave the E.U.
Respected economic indicators created post Brexit are hard to pin down. As I write this, only 7½ weeks have elapsed so there isn’t anything really statistically significant to ‘go to the bank on’, yet. However, anecdotally the evidence seems to indicate a slow down in growth, a sluggishness in the housing market and unemployment beginning to rise.
Circumstantial evidence does suggest that ex. Chancellor Osborne’s intrusion into the Rental market is creating a potential glut of homes that would have ordinarily been snapped up by Buy-to-Let landlords had they not been penalised with an Additional Dwelling Supplement (ADS), better known as second home stamp duty.
Allegedly (see how careful I am trying to be here), house prices are dropping in some parts of the country (RICS August statement) although other organisations like Rightmove report no changes at all. The Bank of England are ‘worried’ enough about the UK economy to drop the base rate to just 0.25% to encourage growth and are making funds available for infrastructure spend and business support. I read to today that the £Pound’s depreciation last Friday meant that Sterling became the world’s worst performing major currency so far in 2016, an accolade the Argentine Peso will be glad to see the back of! I think it is fair to say that the only fact we do have is that the UK economy is in fluctuation and nobody knows what the likely shape of it will be in a couple of years.
Whatever happens, we all recognise that there will be a need for mobility in the workforce, within the UK. Organisations like HM Revenue & Customs are rationalising their estate from about 170 offices to less than 20 in the next
12-24 months, and there will be others. Businesses will need to open new offices in other areas of the UK to respond to opportunities or to parachute in talent to turnaround ailing branches or sub-divisions; project staff need to move to meet client requirements or future talent needs training in new environments and to be given new challenges in order to retain them.
When there is so much uncertainty, many employers turn to the tried and tested Guaranteed Sales Price Strategy (a.k.a. Home Sale Guarantee). In brief, the relocating employee’s home is valued and a Guaranteed Price offered for the property. The employee can relocate to a new area knowing how much they have to spend on a new home, and they are effectively a ‘cash-buyer’. This status allows them to break the inevitable property chain which often plague property sales and gives the relocating employee a buying advantage in order to strike a good deal as a cash buyer.
Although a number of Relocation companies offer a GSP or Home Sale Scheme, there are some differences you should be aware of. The first is whether the Relocation company can fund the Guaranteed Price themselves or whether they are reliant on the employer’s cash. If the employer has to find the funds then the property asset and the loan liability or cash reduction has to sit on their balance sheet or, something that Finance Directors are not always keen on. Secondly, if the Relocation Company is to the acquire the beneficial interest then they should hold the asset in a ‘special purpose vehicle’ so they can ‘ring-fence the asset from creditors’ in the, albeit unlikely, event they go bankrupt.
If you are interested in the detail behind a Guaranteed Sales Price strategy, then ask your Relocation Company for their detailed Agreement, which clearly states the precise policy and methodology they will be applying. The, devil, as they say, is in the detail and it is important to get it right in order not to fall foul of HMRC regulations.
As you may have gathered, the employee’s property isn’t actually ‘sold’ to the Relocation Company but they acquire a Beneficial Interest. In England & Wales this means that there is no Stamp Duty Land Tax payable (SDLT) but there is currently some confusion with Revenue Scotland over the payment of Land & Buildings Transaction Tax (LBTT) and the payment of Additional Dwelling Supplement (although ADS can be recovered if the property sells within 18 months).
For example, if a property is given a Guaranteed Price of £200,000 and it subsequently sells for £220,000, then there has been a Gain on Sale of £20,000. That gain is usual subject to disposal based on the Employer’s Relocation Policy, but it worth noting that the employee is exempt from capital gains tax (like most things, there is small print to consider) if they get to keep some or all of it.
Using the same property example, if the property subsequently sells for £195,000 then there is a Loss on Sale of £5,000. That loss is paid by the employer and can be treated as a business expense. Interestingly, many people see the gain as a benefit, but in reality it is the loss that is the benefit because the employee has effectively secured more value from his asset than he would have done if he had not used a GSP strategy. This is why the operating rules regarding valuations need to be strictly adhered to so that there is an even chance of either a gain or a loss occurring.
What can we conclude? If you need to move a home-owning employee relatively quickly within the UK, a GSP strategy is cost and time effective. Choosing a Relocation Provider for this service needs more investigation than reading a few words on a website, if the employer and the property assets are to be fully protected. You don’t have to fund Guaranteed Prices and in fact interest on the ‘loan’ is now really very inexpensive.
Perhaps it is time to dust off the old Domestic Relocation Policy and once again think how a Guaranteed Sales Price Strategy could help you in this time of uncertainty.
Adrian Leach is a Director at HCR Group, the Employee Relocation and Corporate Accommodation company based in Basingstoke, Hampshire. They have been providing HCR and client funded GSP strategies for 20+ years. For more information about how GSP works, please contact him at Adrian.Leach@hcr.co.uk or call him on 01256 812700 (Switchboard).