Glossary

Acquisition Cost

The purchase price of the property plus all related transaction costs, including tax, legal fees and SPV Reserve.

Anti-Money Laundering ('AML')

Money laundering is the process of transforming the proceeds of crime into ostensibly legitimate money or other assets. Five Acts of primary legislation govern money laundering and terrorist funding in the UK;

1. Terrorism Act 2000
2. Anti-terrorism, Crime and Security Act 2001
3. Proceeds of Crime Act 2002
4. Serious Organised Crime and Police Act 2005
5. The Money Laundering, Terrorist Financing and Transfer of Funds (Information on the Payer) Regulations 2017

British Pearl has a strict customer due diligence process designed to prevent the site being used for money laundering.

Articles of Association

One of the constitutional documents of a company that sets out its management and administrative structure. The articles dictate the internal affairs of the company, such as director and shareholder rights, the issue and transfer of shares, and the organisation of meetings.

Asset Class

A group of securities which have similar economic properties and characteristics. Shares, bonds and property are examples of distinct asset classes.

Assured Shorthold Tenancy ('AST')

The most common type of residential tenancy, and is also used to describe the agreement documenting the tenancy. They typically run for a fixed term, usually 6 or 12 months, the tenants deposit must be protected in a recognised scheme and the landlord must give the tenant at least 2 months’ notice to leave.

Below Market Value ('BMV')

This is the difference between the purchase price of a property and its current market value, typically expressed as a percentage.

Buy To Let ('BTL')

The purchase of a property with the specific intention to rent the property out and generate rental income.

Capital Gain

The difference between the purchase price of an investment and the sale proceeds when the investment is disposed of. The capital gain does not account for any income received (such as dividends).

Capital Gains Tax ('CGT')

A tax levied by HMRC against capital gains realised by individuals and corporations. An investor may own shares that appreciate every year but CGT is not payable on the shares until they are sold.

Client Money Account

This is the bank account that British Pearl holds on behalf of its customers with Barclays Plc and is ringfenced from British Pearl itself. All customer funds are held here and are separate from the British Pearl business funds. More precisely the account holds:

• investors funds (with not less than the £100 minimum funding amount) where customer money sits pending investment, and
• where dividends (for Share Investors) and interest (for Loan Investors) are paid during the life of an investment, plus
• repayment of capital and gains (for Share Investors only), if any, upon investment exit.

Corporation Tax

A tax levied by HMRC against the profits earned by a business during a given tax period. Corporation Tax years vary by company - unlike an individual's Income Tax, which is applied over the same period for every individual (from 6 April one year to 5 April the following year). The tax is applied to a company's operating earnings i.e. after expenses such costs of sales, overheads, interest and depreciation.

Crowdinvesting (or Crowdfunding)

The funding of projects or ventures by raising money from a large number of people, 'the crowd', usually online. Two of the main types are equity (shares) and debt (loans).

Debt

Money owed by one party to another. The borrower has to repay the money at a later date, typically with an obligation to pay interest on a periodic basis, usually monthly or annually. A debt usually takes the form of a loan or a mortgage.

Developer

A property developer. A person or company that seeks to make money by building new homes or renovating existing properties.

Dilution

A reduction in the ownership percentage of a company caused by the issue of new shares, resulting in each existing shareholder owning a little less than it did before the new shares were issued.

Diversification

A risk management technique that mixes a wide variety of investments within a portfolio. This can be done by combining investments of different sizes and types in various regions, with the aim of lowering risk and raising returns.

Dividend

The distribution of a portion of a (property owning) company’s profits to shareholders (i.e. Share Investors). Dividends are typically payable monthly and are calculated as gross rent, less deductions for:

1. Property related costs (including property management, maintenance and insurance)
2. Corporation Tax
3. SPV Reserve and estimated void periods.

Dividend Tax

An income tax levied on the dividend payments received by the shareholders of a company. This is payable to HMRC directly by each individual through their annual tax return. The latest dividend tax rates are published on the Governmnet's website.

Dividend Yield

An annual measure of the net income received from dividends expressed as a percentage of the total cost of the investment.

Example: The price of a property is £90,000 and the transaction costs are a further £10,000, meaning the total cost of the investment is £100,000. This property generates £15,000 in rent per year, less £7,000 in management and other costs. This results in a dividend yield of 8% i.e. £8,000 net income (£15,000 rent less costs of £7,000, divided by £100,000 investment cost).

Equity

Shares or similar securities that represent an ownership interest in a company.

Equity Crowdinvesting

A type of investing that enables multiple investors to buy equity (shares), or similar equity interests, in an investment. This is normally done through an online platform.

Exit

An event when investors may be able to sell their shares or loans and realise any capital gains they have made.

Faster Payments Service

A payments system organised in the UK between participating financial institutions that agree to various standards and processes in order that payments made between them can be agreed and made as quickly as possible - generally within minutes. There are limits to the amounts that can be sent by individuals that vary from bank to bank. They are typically between £10,000 and £20,000 but you should check with your own bank to confirm the limit that they may impose.

Fees

For details on all of the British Pearl fees, please see the FAQ here (add link to relevant FAQ).

Financial Conduct Authority ('FCA')

The UK financial services regulatory authority. British Pearl Limited is a company authorised and regulated by the Financial Conduct Authority (Register No. 674693).

Forecast Dividends

The monthly dividend payments that a Share Investor is expected to receive from their investment.

Freehold

There are two ways of owning land in England and Wales: Freehold and Leasehold. Freehold means owning the building and the land it stands on outright, in perpetuity. The Freeholder has responsibility for maintaining the fabric of the building – the roof and the outside walls. It is your name on the Land Registry title as “freeholder”, owning the “title absolute". Whole houses are typically sold on a freehold basis.

Gross Development Value ('GDV')

If a property is purchased to be developed, the GDV is the estimated value of the property once the construction or refurbishment is completed.

Gross Rent

The forecast or actual rental income received, before any deductions. For example, if we estimate that we can let a property for £1,000 per month, then forecast gross rent is £12,000 per annum.

Gross Rental Income

How much rent an individual property investor will expect to earn from their property over a year, before the deduction of any costs.

Gross Rental Yield

The forecast gross rent expressed as a percentage of the latest property value. For example, if gross rent is forecast at £10,000 for a property valued at £100,000. The gross rental yield would be 10% (£10,000 divided by £100,000).

Ground Rent

Ground rent is a payment that is made by a leaseholder to a freeholder, normally on an annual basis.

Her Majesty’s Revenue and Customs ('HMRC')

A government department that administers and collects major taxes such as Income Tax, Corporation Tax, and Capital Gains Tax.

House in Multiple Occupation ('HMO')

A property rented out by at least three people who are not from one 'household' (for example, a family) but share common facilities like the bathroom and kitchen.

House Price Index ('HPI')

An official statistic provided by the Land Registry that captures changes in the value of residential properties in England and Wales. We use the HPI to revalue the properties regularly based on the data for the particular borough or region and type of property (this is updated annually with a valuation undertaken by a surveyor). At present the HPI contains details on over 19 million sales and the data is analysed on ‘like for like’ comparisons between properties. For more information please see the HPI website.

Income Tax

This is a tax levied directly on personal income which includes earned income such as salaries and commissions and unearned income such as dividends, interest and rents.

Information Commissioners Office

An independent offiice appointed by the Crown. Their mission is to 'uphold information rights in the public interest, promoting openness by public bodies and data privacy for individuals'. The key oversight that they have which affects British Pearl is our requirement to adhere to applicable data protection laws in the U.K. and abroad.

Information Pack

Contains details of the investment opportunity and financial information, supported by professional reports from solicitors and surveyors.

Interest Payments

Typically, a monthly payment by the SPV to the Loan Investors determined by the interest rate on the loan. As a borrower, an interest payment represents the rate charged for being lent funds. As a lender, interest payments represent income.

Investment

Refers to the shares in or loans to a specific property owning company.

Investment Cost

The price paid for the property plus other costs including (but not limited to) transaction costs and all associated development and/or refurbishment costs that may be incurred. This will be the amount of funds raised from Share Investors and Loan Investors.

Investment Exit Date

The intended exit date for the investment when the property will be put up for sale on the open market, assuming the investors choose not to renew (if the invstment is a rental property). The Investment Exit Date for rental properties is likely to be five years and up to two years for developments.

Investment Term

This is the period of time that an investment will run for. In the case of British Pearl, the investment term is the time for which a property will be listed (and traded) on the British Pearl platform before being sold and the net proceeds distributed to the Share Investors and Loan Investors. The Investment Term may differ in practice to the one indicated in the Information Pack, if the Investment and Risk Team believes it is in the best interests of investors to change it.

Individual Savings Account ('ISA')

Introduced by the UK government in 1999 to encourage individuals to invest by offering tax free income and capital gains on any investments held within an ISA. There are various types of ISA and each has restrictions on the types of investment that can be held within it. The British Pearl ISA is an Innovative Finance ISA.

Innovative Finance ISA

Introduced by the UK government in 2016 as a new type of ISA. The British Pearl ISA is an Innovative Finance ISA which allows investors to make loans and benefit from paying no Income Tax on any interest received nor any Capital Gains Tax on any gains (which might be made in the Resale Market).

Know Your Client ('KYC')

The regulatory process performed to verify the identity of customers to help prevent against money laundering and other financial crimes.

Land Registry

Her Majesty's Land Registry is a non-ministerial government department created to register the ownership of land and property in England and Wales. It is one of the largest property databases in Europe.

Leasehold

There are two ways of owning land in England and Wales: Leasehold and Freehold. Leasehold means that the owner has a lease from the freeholder (landlord) to use the property for a number of years. Leases are usually long term – usually 90 to 120 years but sometimes as long as 999 years. The lease is the contract with the freeholder, which sets down the legal rights and responsibilities of both sides. Leaseholders normally pay an annual 'ground rent' to the freeholder and are responsible for paying maintenance fees, annual service charges and their share of the buildings insurance. The freeholder will normally be responsible for maintaining the common parts of the building (e.g. entrance hall and staircase) as well as the exterior walls and roof.

Lettable

A property capable of being rented (let) or leased.

Liquidity

Describes the degree to which an asset can be bought or sold in the market without affecting the asset’s price. Liquidity is characterised by a high level of trading activity. Assets that can easily be bought or sold are known as liquid assets (e.g. cash). It is safer to invest in liquid assets than illiquid assets since it is easier for an investor sell their investment.

Loan Investor

Lends money to the property owning SPV.

Loan To Value ('LTV')

The amount loaned to the SPV divided by the estimated value of the property. The lower the percentage is, the lower the perceived risk to the lender.

Example: Property value is £100,000, the loan is £50,000 secured against the property. £50,000 (loan) divided by £100,000 (value) equals 50%. Therefore the LTV is 50%.

Management Fee

The charge made by a property manager for taking care of the day to day running of a buy to let property. This will include finding and referencing tenants, collecting rent and dealing with any day to day issues that may come up (such as a faulty washing machine)

Mortgage

A loan secured against a property. Should the mortgage interest payments not be made, and no suitable agreement can be made with between the borrower and lender, then the mortgage holder can force the sale of the property. They would then take the amount they are owed (principal plus interest) from the sale proceeds.

Examples of different types of mortgage:

Net Dividend Income

Income that is received by a Share Investor after all applicable costs have been deducted. This is typically gross rent less all property-related costs e.g. interest payments, maintenance costs, insurance, lettings and management fees. The Share Investor is responsible for making any Income Tax payment to HMRC that may be due.

Net Interest Income

Interest income that is received by a Loan Investor after the deduction of fees and taxes where applicable.

Net Profits

Profits after fees and taxes. This is only relevant to Share Investors as their returns are not known in advance.

New Home Builders Certificate ('NHBC')

A warranty program which protects the purchaser of a newly built property from the costs of remedying building defects for up to ten years. For full information please refer to the official website

New Sale Market

New property investment opportunities.

Open Market

Refers to the housing market and is used to refer to British Pearl selling a property through the open market at the end of the investment term.

Ordinary Shares

Shares which represent standard equity ownership in a company. Ordinary shares generally entitle the owner to receive dividends during the life of the company and distributions on its winding up or sale, but do not carry preferential treatment.

Portfolio

A group of financial assets such as shares, property or bonds, held by one person or entity.

Property Value

This is not something that is easily or cost effectively assessed on a daily basis, unlike shares quoted on a stock exchange or foreign exchange rates. We try to provide as much information as possible so that investors can understand as accurately as possible each property's value at any point in time.

At purchase we engage independent chartered surveyors to carry out a physical inspection of a property before providing a RICS Homebuyers Report and valuation of the current open market value. Once an investment is fully financed we make it available in the Resale Market. At this point we provide further information on a regular basis. Annually we will engage independent chartered surveyors to provide a desktop valuation for each property. We use House Price Index data produced by the Land Registry to estimate the current value of each property more regularly and update the site shortly after the data is published.

Rental Income

The rent paid by the tenant. It may be stated on a gross basis (i.e. the actual total amount paid by the tenant) or a net basis (i.e. after the deduction of taxes and expenses).

Rental Yield

The annual gross rent (the actual amount of rent paid by the tenant, i.e. before the deduction of taxes and expenses) as a percentage of the property value.

Refurbishment

This is the process of repairing and redecorating a property to bring it up to date.

Report on Title

Provided by a solicitor, it comments on the extent to which the property title is good and marketable, and highlights any potential issues to the purchaser and/or lender.

Resale Market

The marketplace where Share Investors and Loan Investors can buy and sell shares or loans in property investments.

Royal Institute of Chartered Surveyors ('RICS')

The world's leading professional body for qualifications and standards in land, property, infrastructure and construction. The RICS promotes the highest international standards in the valuation, management and development of property.

RICS Valuation

A property valuation undertaken by an independent chartered surveyor belonging to the Royal Institute of Chartered Surveyors. This form of valuation is an industry standard for banks, other mortgage lenders and all property professionals.

Risk

This refers to the possibility that actual returns on an investment are lower than expected, including where an investor may lose some of the capital they invested.

Service Charge

Where a property shares communal areas between different owners, there is generally a charge applied to cover the cost of the maintenance of those areas. This is most common in a block of flats where a management company may be employed to ensure that common parts are kept clean, decorated and of a high standard so that the overall property value is supported.

Shares

An ownership interest in a company which entitles the shareholder to certain rights, for example a share of the profits or dividend payments from the company.

Share Investor

Is an investor who purchases shares in an SPV.

Share Valuation

The share valuation is the latest valuation expressed on a per share basis.

SHIELD

SHIELD is a short-term loan facility that we have the discretion to make available to any SPV requiring liquidity support where the SPV Reserve has been depleted. It is possible that an SPV could encounter several negative cash flow events at the same time, requiring funds more than the SPV Reserve and rental income. In such circumstances, where the investment is still worthwhile, SHIELD acts as a second line of defence for the SPV after the SPV Reserve has been fully utilised. SHIELD is funded directly from British Pearl revenues and can be deployed to any SPV, unlike the SPV Reserve, which is property specific. SHIELD lending is not guaranteed and it is not a Contingency Fund as defined by the FCA: “arrangements used for the purpose of making payments to a lender when a borrower does not meet its obligations under a P2P agreement”.

Special Purpose Vehicle ('SPV')

Each property investment is owned by a special purpose vehicle (“SPV”), which is a UK limited company incorporated for the 'special purpose' of purchasing a single property. This is done so that each individual property is held completely separately to British Pearl so that any risks to British Pearl as a business will not affect individual SPVs.

SPV Reserve

Each SPV will have an SPV Reserve. This will be an amount of money that operates like a sinking fund. Some of the rental income that is received is put aside to help cover costs such as void periods, maintenance and other events that require cash. It is possible for SPV Reserve funds to be depleted and not replenished. SPV Reserve liquidity is not guaranteed, and it is not a Contingency Fund as defined by the FCA: “arrangements used for the purpose of making payments to a lender when a borrower does not meet its obligations under a P2P agreement”.

Stamp Duty Land Tax ('SDLT')

A property transaction tax levied by HMRC. It is incurred by the SPV on purchase of each property. The latest SDLT rates are published on the Government's website.

Stamp Duty Reserve Tax ('SDRT')

A transaction tax levied by HMRC for acquiring shares in property investments and is only applicable to purchases made through the Resale Market. Note that it is different to SDLT and the latest SDRT rates are published on the Government's website.

Surveyor

British Pearl engages RICS qualified surveyors in order to professionally assess proposed property purchases and to provide ongoing valuations.

Tenancy Agreement

A legal contract between the landlord and the tenant. The agreement contains the terms and conditions of a tenancy, including the duration of the agreement and the rental amount payable by the tenant. See also Assured Shorthold Tenancy (AST).

Total Return

The total return on an investment is the total gain or loss it generates. This includes all income received less any costs incurred as well as any capital gain realised on exiting the investment. It is generally expressed as a percentage of the amount invested.

Transaction Costs

This term covers all manner of costs including, but not limited to, British Pearl's fees, legal fees, surveyor fees, taxes, and refurbishment costs.

Trustees

A person or firm that holds or administers property or assets for the benefit of a third party. They have a fiduciary responsibility to the trust beneficiaries and therefore trusted to make decisions in the beneficiary’s best interests. A trustee is required to uphold a strong level of integrity and impartiality in conducting its duties, they are not permitted to benefit or profit from their position.

Valuation

The valuation of a property.

Value Added Tax ('VAT')

A sales tax payable to HMRC on most goods and services. The latest rates are published on the Government's website.

Valuer

A surveyor who estimates the open market value of property. They also provide their professional opinion on rental yields and ability to let.

Void Period

A period of time when a buy to let property is vacant and therefore not generating any rental income.