UK landlords are increasingly investing in commercial and semi-commercial property in a bid to beat the stamp duty rise, new figures reveal.
A three percent surcharge on second homes and residential buy-to-let investment was introduced on April 1. However, commercial and semi-commercial property is exempt from the surcharge, meaning that those who invest in these property types will have a lower tax bill.
Falling commercial mortgage rates and further tax rule changes being introduced next year mean that this type of property is looking increasingly attractive.
In the budget in March, former Chancellor George Osborne reformed the stamp duty regime for most buyers of commercial property. In a move which the Treasury believes will lower the stamp duty for 90% of commercial buyers, those purchasing commercial property will now be charged a different rate for each band of the property’s value, instead of paying a flat rate.
Following the introduction of the second-home stamp duty increases in April, a buyer of a £300,000 buy-to-let would pay £14,000 in stamp duty, while a buyer of a mixed-use property would pay just £4,500 – a saving of almost £10,000.
See our full comparison table below:
|PROPERTY VALUE||RESIDENTIAL BUY-TO-LET STAMP DUTY||COMMERCIAL STAMP DUTY|
As an added incentive for property investors, commercial yields are often significantly higher than residential yields, with some experts suggesting that buyers can get as much as a 6% yield on commercial property in London – double the average residential yields of 3% displayed in the capital.
As a result, a fifth of investors are now considering semi-commercial property – a figure that has more than doubled since November last year – according to research published by Mortgages for Business.
“With higher yields it is no surprise that there has been a sizeable shift towards the more complex property types,” says David Whittaker, the broker’s managing director.
“The interest in commercial and semi-commercial property may also have grown because these asset classes do not incur the stamp duty surcharge imposed on residential property.”
While full commercial property might present a daunting prospect for casual investors, semi-commercial investments, such as a shop with a flat above, represent a good starting point.
“The flat above the shop is the best approach for an amateur. Depending on the type of tenant in the shop, it’s a nice halfway house between commercial and residential investment,” says Shaun Church, a director of Private Finance.
“You’ve got two different types of property, so it’s an easy way for someone to diversify and reduce their risk – and stamp duty on commercial property is now looking quite attractive,” Mr Church added.
If you are looking to invest in commercial or mixed-use property, then get a quick quote from on your insurance from City Landlord today!