Are you thinking about buying a commercial property to either use yourself or to rent to a business? Regardless of what you want to do with it, buying a commercial unit can be rather daunting – especially if it is your first one. In terms of emotion, it is not the same as buying a home for yourself, but nevertheless, it can be stressful, especially if you are not sure what to expect.
Well, worry not, at Boxpod, we are here to help you make the best decision for you and guide you through the process.
Whether it is a retail unit, warehouse, workshop, or office building, this guide will show you the ropes and help you understand what to expect.
Choosing the Right Property
The first decision that you need to make is to ensure that you buy the right property. Some of the factors that you need to consider include:
- Who will be occupying the property – you or will you rent the commercial unit? You need to think about the specific details of what would be needed – location, capacity, green credentials, parking and transport links, for example.
- Is it an investment – will you be able to make money on it?
- Your buying budget – and don’t forget the costs that you will incur in buying the property, and any deposit that you will need to pay.
- The rules relating to the building – there will be guidelines about what the building can and cannot be used for.
- Any work that needs to be carried out on the property, and how much it will cost to rectify any issues.
Buying a Commercial Property – The Costs
Understanding the costs that you are going to face both at the time of buying the commercial unit and onwards is essential. This is especially important if you are looking to buy a commercial property for an investment.
Some of the costs that you will need to look into include:
Mortgage or Finance
Most people who buy a commercial unit will most likely be buying it using a mortgage or finance. Ensure that you have a good understanding of what these costs are, how long you will have them, and how they are likely to change with time. Do you have the option of refinancing at a later date? It is essential that you spend within your means, as the inability to make payments is a very common reason why commercial properties are lost.
Deposit
It is normal in the UK for an entity that is looking to buy a commercial property to pay a deposit. The decision is made by the lender, and the deposit is normally between 25% and 40%.
The criteria that lenders use to decide the amount of deposit that is needed, depends on several factors, including, your and the business’s credit score, the industry that you are in, and your business’s profitability (if you are an owner occupier), the amount of landlord experience you have, the property type, and the amount of rent that you will be charging (if you are looking to rent the property out).
Tax
The dreaded ‘T’ word. It is vital that you understand the tax system when you are looking to buy a commercial property to either rent out or use yourself.
Several kinds of tax come into play in the UK. If you have any doubts, you should speak to a financial consultant so that you are sure about what you will be expected to pay, both during the purchase and going forward.
Stamp Duty Land Tax
This is the tax that you pay when you buy the property – in a similar way to a domestic property. The amount of tax that you will be required to pay (at the moment) is between 0% and 12% depending on the value of the property in England. This issue is devolved, so the rules will be different if the property is in Scotland, Wales, or Northern Ireland.
Value Added Tax (VAT)
VAT is sometimes paid when a commercial property is bought. It is important to check whether your purchase applies, or whether it will be exempt from tax payments due to it being a ‘transfer of a going concern’.
If you are becoming a commercial landlord, you also have other options when it comes to tax on your rental income. We recommend that you seek specific financial advice when considering this.
Income Tax
Income tax is payable on rental profits however, allowable expenses can be claimed, and these include legal fees, agent and accountant fees, buildings and contents insurance, council tax, and maintenance and repair costs.
Corporation Tax
Corporation tax is payable for limited companies or overseas companies with a branch in the UK, on any rental profits that are made.
Capital Gains Tax
Capital gains tax is payable on any property sales, but there are also relief options, such as ‘Entrepreneurs relief’.
Conveyancing
As with the purchase of any property, you will need to pay a conveyancer to ensure that you know what you are paying for. Remember that the cheapest conveyancer is not always the best one, and it is worth shopping around for the best one. It is also worth noting that there are different levels of surveys that you get, providing you with different levels of detail.
Freehold and Leasehold
When you buy any property – but especially a commercial property – it is important to know the difference between a freehold and a leasehold property.
A freehold commercial property means that you will own both the property itself and the plot of land that it is situated on. Subject to planning laws, you will have the freedom to do what you wish with the property, and you won’t need to pay service charges or ground rent. This is common for buildings that are just one property.
A leasehold commercial property is common in office blocks, or other buildings with two or more businesses included. This means that the land is not owned by you (usually as it is shared) and means that you will need to abide by the rules that are stipulated by the leasehold owner. You will probably have to pay a service charge or ground rent.
Final Thoughts
Whether you are looking for a commercial property to rent out or for yourself, there are many benefits to owning a commercial unit. It is important, however, that you are across all of the facts before you buy it.
If you have a commercial unit that you are looking to fill – or, indeed are looking for a commercial unit for your business, take a look at what we have here at Boxpod.