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5 things to consider when buying a commercial property
28 March 2024
Building & Construction, Property Investors & Developers, Property Owners
There are many things to consider when purchasing a commercial property and careful planning should be undertaken before rushing into a decision.
A small amount of time planning your purchase could result in huge financial savings and tax advantages in the long run.
Below we have detailed our top 5 tips to think about when you are looking at purchasing a commercial property:
End Goal Planning
We often see clients purchasing a commercial property with a plan to develop and sell residential buildings at the end.
However for numerous reasons this plan can pivot at any moment.
It is important that you are aware from the start what potential tax, VAT, SDLT implications a change in intended use may have on your business.
Not being prepared can lead to a huge financial burden on your business!
Section 198 Election
This is a form that your solicitor would fill out on the purchase of a commercial property, however it is something that is commonly missed.
This is an election that allows you as the purchaser to claim embedded capital allowances on the purchase of the property, giving you tax relief up front.
These are capital allowances that already exist within the building upon purchase such as heating systems, air conditioning systems, security cameras, lifts etc.
It requires a specialist to value the cost of these however there can be significant tax savings gained from this!
Purchase options
How are you going to buy the property?
There are numerous options available and each one will come with it’s own tax benefits and charges.
Will you own the property personally and rent it to your business?
Could you buy this through a SIPP?
You could even consider having a group structure in place where the property is held in a separate company.
This could then be rented to your business or you would be able to carry out works in one company and charge it over to your property company.
Financing
Have you considered your financing options and how this will affect your business plans?
Will you be utilizing bridging loans and have a need for a fast paced schedule?
Could the company purchase the building outright using it’s own funds?
What are the opportunity costs of utilizing this cash vs the interest on a mortgage?
Could you personally put the money into the business and charge interest on the loan?
You can potentially earn up to £6k of interest tax free per year and by charging interest on a loan to your own company.
You are able to utilise this allowance whilst also saving tax in your company.
VAT
VAT can be advantageous to the business or detrimental to the business.
Has the property been opted to tax by the seller?
Going back to point 1, what are you plans for the property?
You could opt to tax the property yourself and the future sale/rentals would be chargeable to VAT.
In some cases you may be able to ask the seller to disapply the option to tax which could save thousands!
Will you be converting the property to residential?
There are still cases here where being vat registered can be advantageous, however be careful as a change in your business plans could result in repayments of VAT!
Getting in touch
At Friend & Grant, our extensive experience in the property sector enables us to provide expert support to businesses looking to build and expand their portfolios.
Whether you’re seeking guidance or making critical decisions about your property investments, we’re here to help.
If you have any questions or require assistance with points discussed in this blog, complete a contact form or give us a call on 01634 731390.
Our services
If you would like to find out more about some of our services that might help you please take a look at our related pages:
Property Investors & Developers
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The content in this blog is correct as at 27th March 2024 See terms and conditions.
