I think the nursery is completely stuffed unless I find an expert tax advisor

[Katymac]

I had a phone call this morning from the people who own the barn

Their accountant has pulled up the problem that the increased value of the barn will be subject to inheritance tax & theywon't be able to afford it

So this may stop them leasing me the barn

I need a tax advisor asap as I need to solve this problem & present them with a solution

I feel so gutted and am sitting here weeping at the computer & then feeling so guilty as it's only a bloody business & nobody died or anything

Or if I rent you my spare room - you can spend money improving it, but it is still my house value that is increasing. My house value will be impaired by the fact that I have a sitting tenant, but if you had doubleglazed your windows or installed a jacuzzi it would still improve my house price.

But I refer to my post of 10:03 (and CD's subsequent post) - this is a red herring - you're increasing the value of their property and they should assume that they will be eventually taxed on such an increase. If they don't want the family to have to sell then an insurance policy is their answer (but should be their headache not yours).

The fact that they are putting this issue onto you at this stage is worrying imo. I think that you need a good property solicitor who will help you negotiate a proper contract.

So do I (think I need a good property solicitor)

Oh Crap - I thought I had sorted it

Sorry your 18:02 post - but if you can sell the lease then the issue of whether you "own" the improvements or not, is still not in point - they don't have a separate value in and of themselves they simply impact the values of the different legal interests - the freeholds, your lease and any subsequent sub-leases.

Am surprised that your lease is assignable though given how your rent in calculated?

Who knows

anyway tomorrow I look on the Law Society Website & find a good conveyancing solicitor (which is apparently what I need) & start to pay out large sums of money (again)

poor you Katy sounds complacated

make sure your 25yr lease is at a fixed rate

my friend leased a shop from a friend of hers for 10yrs, the shop was run down etc and she converted it into a hairdressers and had a fab business
after 10yrs new lease due and rent went up 50% which she couldnt afford as staff cost and heating etc so she had to give up
she is mobile now and doing well but still her business is not what it used to be and the shop has re-opened as a hairdressers

Thanks DMO

Do not invest 150 grand in a leasehold nursery. You will not get your money back on it.

They don't make that much money - certainly not outside of London where you can't charge astronomical fees. And they really don't sell for that much.

Your best bet is to find a church hall. That way you will already have the D1 planning permission that you need. It's unlikely that you'll get change of use on a barn anyway.

If not a hall, can't you find a piece of land to put one of these log cabin things on. They cost about £60,000.

Not really - the village hall are all in use

This is to provide me with income while I run it (25 yrs)

I am not anticipating selling it on

It is as much to offer a service & jobs locally rather than to allow me to retire in luxury after 10 yrs

I own a nursery and it's pretty successful full, with a two year waiting list. I charge as much as I realistically can (though the parents still moan about the fees prepare yourself for that as they do not like to part with money, and the more they have, the worse it is), but I don't make much of a profit. And other than the furniture and fittings, I didn't spend anything on setting it up (the building had been renovated by the leaseholder). It will take you years to claw back your original investment (if you sell it), and you'll probably just about break even (or make a little bit of a profit if you're lucky) on the running of it. In about three years time though -- you make a loss before that.

Think very hard before you do it. I'm not kidding, there are a lot of downfalls to it.

I have been thinking about it & planning for it for more than a year now

I have built into my business plan "not taking a wage for 3 yrs" hopefully by that time I will be able to withdraw minimum wage for myself.

I am under no illusions that this will make me a "quick buck" however I enjoy being my own boss enjoy working in this environment will have no travel to work costs and no childcare costs.

So I think it will work for me

Katymac, I am self employed so I do understand where you are coming from.

My question, and it is purely nosiness, how are you funding the improvements? It seems like a huge amount to borrow with a very poor return if you are not able to take drawings for three years. If you are getting a business loan, have the terms been agreed yet and what are the security arrangements?

Also does the break-clause work both ways?

These are things that really are boring but very, very important to understand before you chuck more money at a leasehold project IMO.

Complicated - off to collect DD answer later?

About a third is my money
About a third is a 2nd mortgage (over 11 yrs)
About a third is Angel money (over 5 yrs - I hope this is yet to be confirmed)

Anticipated turnover £160 pa (80% full)
Anticipated profit around £40 pa

It seems to add up OKish

umm ... is the only thing that the family own the barn? is it that an elderly couple currently jointly own it, and when they die (if you have improved it & are leasingit) they're saying that they can't afford the 40% IHT?
If one of the parents dies, would the barn (and any other property) go to the surviving partner or direct to children? if to partner they don't pay IHT
IF 2nd parent dies & the entirety of their estate is over the threshold(currently £250 k - i think) then they would have to pay 40% of their total estate. so ONLY if the barn is the sole part of the esate that the parents own, AND they both die, would your improvements be the reason for them paying 40% IHT.

I hope that makes some sense & I'm NOT a lawyer, but it sounds very unlikely that the parents own nothing except the barn, not even their own house. so could this be a red herring with them getting cold feet at the last moment?
sorry to hear of your problems

Currently the barn is worth x amount and IHT would be 40% of x
If I improve it it will be worth 5x (? or more or less - who knows?) so they would have to pay 40% of that new amount

Running a nursery is incedibly stressful. First of all, you will struggle to make enough money to stay afloat in the first couple of years. It will take you nearly as long to build up a team of people you can trust. Nursery staff for the most part are a nightmare -- they don't like to work, they certainly don't like to do extra work, such as planning (which they don't class as part of their job even if you put it on their job description) and they each go off sick at least five times a month. As for the parents, they do not like to pay, and the more money they have, the worse they are. Ofsted expect everything to be perfect, all the time (and you try pulling that off with staff who don't do planning and don't turn up half the time).

If you fall out with any of your staff (i.e. if you try to insist that they fulfill the requirements of their job description), they will tell lies about you to Ofsted. If you fall out with any of your parents (which you will - about money - every time a bill is due), they will cause trouble with other parents.

Am I building up a picture here? Welcome to the life of a nursery owner.

I can't imagine why anyone would want to put themselves through it for a minimum wage and a big debt hanging over them.

Think very hard about it before you ruin your life.

Katymac, if IHT is really an issue (and from my posts below you know that I think it is a red herring), then you should ask your adviser about business relief. I think that it would be possible to get round the IHT by restructuring your arrangements as a partnership (especially as your rental payments will be more akin to a 10% partnership interest anyway). If you do this then the barn will be exempt from IHT.

That's interesting Ladymuck - I have effectively passed the ball over to them & said I need an answer by the end of the month or I will go elsewhere - it was a hard decision to make - but we could have hovered for ever waiting for a non-existant situation to sort out (iyswim)

Bobbysmum - I understand what you are saying - but I need to do something I am stagnant atm & if I don't do this what else can/should I do?

I have spent months/over a year on this idea after nearly 12 months deciding how to go forwards; taking advise, seeing a life coach & sorting out my goals

Good advice below. I think it's a bit risky spending so much improving someone else's property. Is there no way you can buy it or a 50% interest in it and own it in joint names with them and then improve it?

Obviously yes you can lease an office, improve it hugely and if the lease allows sell the lease on.

You need a good solicitor for all this.

Thanks NurseyJo

I hope I have covered all the options/problems but do appreciate everyone POV as there maybe things I have missed & help is always welcome

Staff management is an issue I worry about but I can only do my best - I hope to treat my staff the way I wanted to be treated myself

Nurseryjo - all I can say is that you must be very lucky. I think it's easier if you're not the owner actually - you don't have the added financial stress of it all.

My nursery got outstanding in all areas in the last inspection, so I'm obviously doing something right. I've had terrible problems with staff however and it's taken years to build up a decent team. Parents are mostly ok, except when it comes to paying the fees. I'm only talking one or two parents here, but one or two makes a difference.

Katymac might be running a fantastic childcare business (I take it she's working as a childminder or nanny?), and she might be very knowledgeable about how to get aspects of it exactly right. But owning a nursery is different - there are huge overheads and you don't make any money for years. Starting off with a debt on a building you don't even own is crazy.

And yes, I'm fine, and thanks for your concern. I'm trying to offer some constructive advice here to save someone making a huge mistake. You only manage a nursery and therefore have no real understanding of the financial burden on the owner to keep it from collapsing. A debt of 150k on a building you do not own is a very bad way to start a business.

Yes I'm a childminder caring for 9 under fives each day - with a staff of 6

I have taken advise from
Business Link
NWES (norfolk & waveny Enterprise scheme)
Natwest
3 individual financial advisors
4 different Nursery owners (including Bubble from MN)

So I have done a small bit of research

It sounds like you've researched it pretty thoroughly and I certainly wish you luck.

I wouldn't risk it personally - not knowing how hard it is just to make ends meet in order to pay the staff and the rent. The year I opened I couldn't afford to buy my own kids a Christmas present. That's how hard it is.

Is there no chance of a local school or doctor's surgery allowing you to use a spare bit of land to put one of those log cabins on? That way you would at least own the building - and at half the price.