The LCN Property Interview: Justin Walton

Justin Walton, founder of Purple Bear Group, talks to LCN Property about the changes he's seen during his career, how he expects things to change in the future, and what inexperienced small investors often get wrong.

Justin Walton is the founder of Purple Bear Group, which has three divisions: Advisory, Properties and Connect. The business provides a range of services: a key one is providing tax advice to the property, infrastructure, and related sectors.

What exactly do you do in the property sector?

Purple Bear Advisory is my own consultancy. It has three areas of focus: property tax is one of them and the biggest proportion of my client base is in the property and related sectors. That includes investors who are investing in a buy-to-let or a holiday let for the first time. Also, larger portfolios whether they’re held by individuals or by companies. We also advise on large infrastructure projects, which is what I did during the first, corporate, stage of my career, doing due diligence and M&A. Often this means partnering with other consultancies such as corporate and project finance firms.

Is infrastructure very different from property?

It depends on who you’re talking to. In one way it is part of the property sector, because ultimately most of it is fixed infrastructure. But people in the infrastructure space tend to see it is a separate thing, because it’s big and because it’s niche.

 

Are they very different from the perspective of tax and financial structures?

This is one of the great things about this type of project advisory work: issues scale. Numbers might be huge, or numbers might be tiny, but issues scale. Fundamentally, you’re talking about businesses that have got one asset or many assets and usually a long investment timeframe (unless, of course, you’re in development, in which case it’s a much shorter period). But most of what I do is around the investment side: looking at that long-term strategic position – whether that is infrastructure or whether that’s property – forms part of how I support my clients.

 

If you think about an infrastructure project that has, let’s say, a 25-year life. What you’re looking to do as a tax adviser is manage the post-tax project and asset returns and the investors’ post-tax investment returns. So initially you’re going in with a series of developed tax assumptions, because who knows what the actual position will be over the investment life. And once you’ve done that, you’re then monitoring and reviewing as things happen. You might hold, sell, or enhance your portfolio.

 

It’s the same in property. The biggest difference is that with infrastructure there’s usually a contractually set period of time that you’re going to have the asset for. Whereas with property that’s obviously much more in your gift to decide.

How did you get into the property sector?

I’m a Chartered Tax Adviser by profession. I qualified in 1992, working for what is now BDO, a large accountancy firm. I worked on some of the firm’s property clients. I started specifically focusing on property and infrastructure at the end of the 90s, when I moved to KPMG and then to John Laing Group, which is one of the major market leaders in the infrastructure space.

 

Being interested in property as an asset class, I began looking at investment opportunities myself. This is what Purple Bear Properties does. So not only do I advise others, but I’m also needing to be aware of those issues myself, which obviously keeps me aware of the sorts of business and lifestyle issues that my clients might be facing. As an advisor, if you can empathise with your clients and your suppliers and talk their language, then the conversation is much easier.

What’s your view on volatility in the property market?

There is a reasonably well-understood theory called the property cycle. Essentially, it’s an average of about an 18-year period of nothing, steady growth, a mid-market dip, boom, winner’s curse and then bust. If you look at where we are right now, we’re very much in the boom phase, and experts are predicting that a bust may happen in perhaps four, five, six years time. That’s if the cycle plays out to form.

 

In my professional career I’ve worked through a little more than two cycles, and it’s interesting how people behave because – certainly at the individual investor level, unless they’re experienced – they tend to follow what’s in the press. And that’s not always the right thing to do. You need to understand the cycle.

What about the legal and regulatory environment: has that changed a lot during your career?

It has. One of the big changes is rates of tax, which have been steadily falling. If you go right back to when I started in the late 80s, tax rates were so much higher. We’ve had a long period now of relatively low and stable tax rates, whether that’s for individuals or corporates. And now we have the OECD tax reform plan that the majority of countries in the world will set a minimum level of corporation tax, to try and avoid a race to the bottom on rates.

 

But are we now going to be on a trend back upwards? The UK has tried to prevent that as much as possible, by issuing more money as a means of plugging the funding crises brought on by the pandemic. But we also hear the rhetoric around raising taxes from some quarters.

 

Compliance has also certainly got a lot tighter. We’re in a self-assessment regime, which we weren’t when I started my career. So we’re going to the taxman saying this is the answer. And the onus is very much on the taxpayer to get it right, and to have support in case you get challenged. We’re also moving further into Making Tax Digital, which involves more real-time reporting. So probably the single biggest change over my career is just the ongoing tightening of compliance and regulation.

How do you see things going over the next four or five years?

I think that the direction of travel still is to regulate more and to make compliance tighter still. Tax rates may creep up but maybe not headline taxes. I’m not expecting them to jump massively, certainly not in the short term. I think if this boom that we’re in at the moment continues for a period of time then the tax take could go up naturally because there’ll be more money in circulation, more profit, and more transactions to tax. I’m not an economist, though!

Have you had any mentors or role models?

At KPMG, I worked with a partner in the Infrastructure team, Margaret Stephens. Between us – and it was essentially the two of us, certainly at the start – we helped put in place the tax structure for infrastructure deals in the UK. We got that over the line with HMRC on some big projects. Working with someone to achieve something like that which has stood the test of time was great experience.

 

And then when I moved to John Laing, Adrian Ewer – who was the Finance Director when I started and then became the CEO – said something to me early on that hit home. He said something along the lines of: “Don’t make it too complicated. Because everyone plans for these transactions on the basis of success, but not all succeed, and I want to be able to get our money out if we need to.” And that has stuck with me ever since. In that role I was often on the receiving end of advice from professional firms but I was also advising the business, so it really helped me focus on practical, simple solutions, and explaining things commercially.

 

I can’t answer this question without talking about my wife Wendy either. We met over 30 years ago at Stoy Hayward, and we have worked as a team ever since. As well as the love of my life and mother to our fantastic children, she is inspirational professionally. She has gone from A-level trainee to the leadership team (equivalent of the Board) at BDO, via growing one the best Global Private Client teams out there. I always run my ideas by her and she is extremely honest with me! But she is also massively supportive, particularly when I decided I wanted to leave my Group Head of Tax job at John Laing (up until then the role I aspired most to) to start out on my own and lay the seeds for Purple Bear Group.

What’s Purple Bear Advisory’s focus at the moment?

My strategy around property is to focus on the smaller investors that really need help and are not well served at the moment. They’ll typically talk to a local general accountant about their tax compliance, but they won’t talk about the strategy of what they’re doing or get into the detail of the tax advice they need. Often, they don’t know what they don’t know. And that’s where I think there’s a place for me: helping ordinary people with their long-term thinking. I am also helping people that need to bring their property tax affairs up to date with HMRC, and other more established investors to structure their businesses effectively.

What are the kinds of decisions that small investors need to make?

There are many, starting with: do I own this property myself or with my partner? Or do I use some kind of corporate vehicle: a company, or a partnership? So there’s an initial assessment that takes place to help that decision-making. Tax is not the only factor in the decision, but tax is an important part of it.

 

You need to think about these sorts of things right at the start. Once you’ve bought the property – and certainly once you’ve got finance on it – it’s much more difficult to change things simply. So people really need to focus on these things right at the very beginning, ideally before they’ve even put a pound in, and certainly before any real value starts to accrue.

 

Another area of focus is the recent trend for more people to buy holiday accommodation in this country. So, I help people to do that: to structure it effectively and maximise their tax allowances on purchasing the property, which is something that’s often overlooked but can be valuable.

 

Is that because people’s professional advisers aren’t telling them that they need to think about these things?

Yes, exactly. Every time I talk to someone about this, the first thing they say is, “No-one’s told ever me about this.”

 

 I can relate to this too. I bought a holiday property recently. At no point during the purchase process did any advisor say to me, “You need to look at the tax allowances on this property you’re buying.” The estate agent didn’t mention it. The solicitor didn’t mention it. The surveyor didn’t mention it. They can’t professionally advise on it, of course, but no-one even said, “You need to talk to an expert about that.”

 

So I want to serve that market but, most importantly, to do it in a way that’s professional. I’ve teamed up with a large, UK-based specialist capital allowances consultancy to professionalise and serve this market. I know the firm from my time at John Laing so it’s nice to be working with them again now to serve clients in this area.

Looking back on your career so far, what achievement are you most proud of?

Being part of that KPMG team that formulated the taxation of public infrastructure projects in the UK. We got projects over the line at the very early stages of these deals – public infrastructure that would not have been built without that business structuring. And the same structure has been used on many, many UK infrastructure projects since then. It was the first time I felt like I owned something professionally that had meaning, and it has stood me in good stead ever since.

What would be your ideal job if you weren’t doing what you do?

I love working with property and advising on property and it is such an integral part of my life right now. And I certainly wouldn’t change anything professionally so far – I have worked hard and been fortunate in my career to have been involved with interesting people working on interesting projects.

 

But my passions are music and sport.

 

With the benefit of hindsight, I’d love to have been properly coached on some of those things as a child and maybe now be a musician or a sportsman.

 

I always wanted to play the saxophone as a kid. It’s not quite such a popular instrument these days, but maybe it’s on its way back! I ran a mobile disco back in the day which was good fun and we had a residency at a local pub. It’s brilliant seeing everyone having a good time. On the theme of music, I did apply to one of the major record labels before I got into tax but I didn’t have anyone to mentor me on what I was looking for, and so that career option faded away. If not a career directly in music or sport then organising large events, like concerts. I admire the work of Harvey Goldsmith.

 

I play squash and racketball, and although I didn’t make a career out of sport, I do now run business networking events around squash (The Squash Club Business Network and the annual Essex Business Squash Tournament). And my business partner and I are looking to organise more sports-based events.

 

What is your biggest extravagance? 

Deciding that we liked spending time in the sun led us to buy an overseas holiday property some years ago.

 

Describe yourself in three words.

That’s the hardest question. Empathetic, balanced, trustworthy.

 

Which actor should play you in the film of your life story?

I was interviewed by LCN Property about 5 years ago, and I was asked this question then. From memory I said Al Pacino. Although now the age difference is a bit more of a problem: I’m not sure I want an 81-year-old man playing me now! But he is my favorite actor – him and Robert de Niro in their younger days. So, let’s stick with Al Pacino, but using that new de-aging CGI technology!

 

Who would be your ideal guests at a dinner party?

Dave Grohl. Because, as well as being a fantastic musician and being able to hold a crowd of 100,000+ people, he’s obviously a great businessman and family man as well. You don’t survive in music for as long as he has, certainly with a huge tragedy early on in his career, without being a great person.

 

Mark Warburton, the manager of Queens Park Rangers. (I’m a season ticket holder.) He, Lee Hoos and Les Ferdinand are slowly changing the club from what was a very extravagant time ten years ago to being back to what QPR is about, which is bringing through young talent. And that’s been a theme through my life as well:  it’s great giving people opportunity and watching them grow. And those guys in particular – obviously, there’s many more in the club that are part of that process – I’d love to just talk to them about the future of Queens Park Rangers.

 

For historical figures, Winston Churchill. He had a long and distinguished life, and obviously got us through the war. And Margaret Thatcher – I know this is potentially a divisive comment, but I strongly believe that if it wasn’t for her, I wouldn’t be a tax adviser. I have a working class background, didn’t have the opportunity to go to university. My grandparents had council houses. To my mind, the changes that she put through in the 80s gave me the opportunity to do what I do now.

 

What advice would you give your younger self?

 Take the opportunities that are presented to you, be prepared to fail to succeed, and have fun. You’re only young once. It’s true – when you’re young you seek experience, and when you’re experienced you seek youth. Enjoy your youth!


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