The number of property-owners who buy to let turning to commercial properties investment has more than tripled over the last three years.
As residential landlords have been hit by several buy-to-let changes in recent years, most of these property investors are now looking to improve their portfolio by venturing into the commercial properties market. Here is a look at the key changes and their implications.
At the beginning of the year, the government declared that it was going to increase stamp duty for people buying second homes, including buy to let properties. From April this year, property owners will be required to pay an extra 3% stamp duty above the previous rates for buy to let properties.
For instance, if a property owner bought another property before the 1st of April, 2016 for five hundred thousand pounds, he would have paid 0% stamp duty on the first 12,000 pounds, 2% on the next 125,000 pounds, and 5% on the remaining 250,000 pounds, working out to 15,000 pounds in total. The new rates are 8%, 5% and 3% respectively, which doubles the tax payable on such a property to 30,000 pounds.
Wear and Tear
April 2018 also saw the enactment of the new rule, which means that landlords can now only claim for wear-and-tear costs that have physically been incurred.
Under the prior rules, property owners were permitted to deduct a yearly allowance from their taxable profits for wear-and-tear, irrespective of what was spent. Now, however, you’ll have to produce itemised receipts if you want to have these costs debited from your tax.
Capital Gains Tax
In 2016, the Chancellor declared that capital gains tax would cut in that year’s budget; however, the cut would not be applicable to property owners.
The basic capital gains tax rate has gone from 18% to 10%, while the much higher rate has dropped from 28% to 20%. Profits acquired from assets like shares and stocks are now subject to these lower tax rates; nevertheless, this does not apply to properties. Property owners, including homeowners, who sell off their properties are now effectively subject to an 8% surcharge that other asset investors will not face.
From his view, George Walker, a commercial auction partner at Allsop, a property auctioneering company, said that the market would likely start seeing a lot more investors because of these buy-to-let changes. Once an investor has bought one, they won’t believe the simplicity of the process and will likely want to invest more.
There are many options such as a warehouse for rent in Surrey or retail units in Hampshire.
Purchasing Properties Through Limited Companies
Last year alone, well over 100,000 property owners purchased properties from limited companies, with loaning to limited companies accounting for about 30% of all buy to let purchases within the first half of that year.
Experts predict that buy to let mortgages via limited companies will swell in 2018 as property owners look to avoid mortgage lending changes and heavy taxes.
Nevertheless, should the government opt to clamp down on these trends, residential property investors could end up following suit, turning their attention to commercial properties market.
Here’s what to remember if you are thinking about venturing into commercial property investment. Buy to let property owners considering investing in commercial properties should, nevertheless, do their research.
The responsibilities of residential landlords are different from those of commercial landlords, and understanding the differences is vital in ensuring that you handle your business legally.
Commercial landlord insurance is something worth considering as the endorsements, cost and policy wording of commercial policies will differ from those of residential property owners insurance policies.
The market is also different so should your expectations be as an investor – the amount of rent you earn is one of the main factors to consider when investing in commercial properties. This is in contrast to the focus of most residential landlords, which is capital growth.