House Rules: property law and how to assess a home’s flood risk

1. Flood risk

The media is full of stories about floods. How do I get a real picture of whether my home is at risk? I live miles from the sea. Dramatic pictures of waves crashing towards people’s homes and rivers that have bursts their banks always make the front pages. Yet many inland properties in the UK are vulnerable to flooding from surface water. Until recently, flood maps published on the UK Environment Agency’s website didn’t cover surface water flooding, so they could have given people the wrong idea about the overall flood risk to their property. That changed just before Christmas, when the Environment Agency published new maps showing the risk of surface water flooding.

How accurate are they? That varies, because they are based on local data which is better in some places than others. You will generally get a more detailed and accurate assessment by paying for a flood risk search – various products are easily available. But the free Environment Agency maps now narrow the risk assessment down to a postcode, so you can get a fairly tailored result. You can zoom in and out on the map, to see the risk level for adjoining areas, which might be useful if you are trying to narrow down an area for house hunting.

Can it show the difference in risk between me and my neighbour? You can’t rely on it being that accurate. For example, the underlying data won’t take into account any specific features of a particular property that might change the risk, such as the amount of hard landscaping or any flood prevention measures that have been put in place.

How do Environment Agency searches rate properties? The classification changed when the new maps were introduced. A property’s risk will now be described as high, medium, low or very low. High means a 3.3 per cent chance of flooding in any year; very low means a less than 0.1 per cent chance.

If the new data changes the way my home’s risk of flooding is described, will it affect my insurance? It could, although most insurers have been taking the risk of surface water flooding into account for some time. Discussions between the government and the insurance industry on a fair and affordable approach to flood insurance are continuing.

House Rules: property law and riverside homes

2. Tax on residential property

The UK government seems to be raising tax on residential property owners. What’s going on? Since 2012 the UK government has been on the charge, with high-profile campaigns to achieve “fair taxation” for the residential property market and to clamp down on the use of corporate structures to avoid tax. Both policies target UK residential property and will affect both overseas and domestic owners. Whether you are a buyer, a seller or a developer, you need to understand when tax thresholds bite and when the changes come into force, so you can make the all-important decisions at the right time.

Isn’t this a risky strategy? It could be. This close to an election, any growth in the residential property market is welcome and the government has to tread a fine line. Too many tough changes at the wrong time, particularly those targeted at the so called immorality of tax avoidance and ultra-high value residences, could backfire. The government is taking a piecemeal approach, carefully gauging public opinion at each step.

So what’s the latest? Non-UK resident individuals will be hit from April 2015. As part of a package of extensions and modifications to the capital gains tax regime, CGT will for the first time be charged on gains made when non-UK resident individuals dispose of directly owned UK residential property.

What if a non-UK resident owns UK property through a corporate vehicle? This was hit in April 2013. Since then, non-resident corporate entities disposing of UK residential property worth £2m or more are subject to CGT. The tax is widely drawn but various exemptions were added to exclude residential property used for genuine business purposes, such as properties held as part of a commercial property letting or development business. Remember also that the 7 per cent rate of stamp duty land tax bites at £2m, and 15 per cent for purchasers using corporate structures. Anyone buying or selling at about the £2m price mark will need to think carefully. The market is likely to see pressure to cap prices at just below £2m.

What about CGT on straight domestic transactions? UK resident owners are being hit too. At short notice, the government has announced that the final exemption period for principal private residence relief will be reduced to 18 months from three years with effect from April 6 2014. Currently, your last three years’ ownership of a property which is, or which you have elected to be treated as, your principal private residence will qualify for relief even if it is no longer your principal private residence. The shorter exempt period could mean bigger chargeable gains (so more tax) on the disposal of second or third homes. Although the deemed exempt period has been reduced, it is still important for those multiple homeowners for whom this relief is often relevant to consider carefully when to elect to treat a property as a principal private residence.

William Boss is joint head of UK real estate at King & Wood Mallesons SJ Berwin

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