The agent

Graham Allman, managing director, GA-Select

Freeholds are a valuable commodity and great consideration should be given as to how best to use the equity within them when it is time for your exit.

An outright sale is the obvious route, but there are other options worth consideration. Sale and leaseback has become a favoured business solution, where an owner sells the freehold to an investor then leases back the business and carries on trading.

There is then an opportunity to have a second bite at the cherry, when further down the line the leases can be assigned at a profit.

In April, our director, Simon Kershaw, completed a deal where a pubco purchased a group of three freehouses in Lincolnshire for close to £2.5m, leasing back to the former freeholder who wishes to grow the group as a joint venture with the pubco.

This released a substantial amount of capital for further investment through our partner Norwich Union, which has maximised the client's investment returns, along with intelligent use of the capital gains tax (CGT) that would have been due — a win-win position.

When considering an outright sale and exit, possibly at the point of retirement, CGT needs to be considered, along with inheritance taxation.

Having completed on two such freehouse deals in May at circa £900,000 each, we introduced Norwich Union to the vendors, who took the advice offered and have arranged their finances in such a way as to provide a substantial income in retirement, along with minimising their taxation. This needs to be looked at closely when a freeholder is considering leasing out their freehouse — better and safer returns could be made from an outright sale with proper investment.

It is a fallacy that the owner gains from growth in the property value when property prices start — as they will — to rise again. As an investment, the pub is only ever worth a multiple of its rent achieved.