Step 1Establish the scope of property purchase
What is the purchase for?
If you are looking to owner occupy we also recommend reviewing our Guide to Renting. This contains some useful information on picking the right property for your business and provides detail on anticipated occupier costs.
When investing in commercial property, your business can purchase the property directly or via an SPV (Special Purchase Vehicle) which would then rent the property back to the business.
If you are looking to create an investment or purchase a property that is already income producing, bear in mind there are various ways in which you can structure your purchase.
If the ultimate goal is to create a Pension consideration should be given to setting up a SSAS or SIPP. Boolers are Chartered Financial Planning, Pension Advice and Investment Management consultants and can help advise you.
The best structure will depend on your situation and objectives.
Determine your budget and investment goals
When considering your commerical property purchase it is important to establish your budget, set your investment goals and make sure costs can be covered if the property were to become unexpectedly vacant.
Commercial Property Finance may not be as readily available as you might expect, particularly for first-time buyers or inexperienced investors. A Commercial Finance Broker can help assess your situation, your needs and come up with a range of financial solutions to help facilitate your purchase. They can seek the best terms and rates available to your circumstances. Please contact us for further information.
Know where you want to invest
Appoint an agent or surveyor such as Omeeto to help you research the market to form a view of value, supply, demand and vacancy rates.
If you are a first time investor it may be wise to buy something local to you and in a sector you are familiar with.
Step 2Factoring the costs of buying commercial property
Acquisition of Commercial Property is generally more expensive than residential. It is often prudent to retain an agent or Surveyor such as Omeeto to assist with negotiating your commercial property purchase. If you require property finance a commercial Mortgage Broker shall be able to advise on Arrangement and Valuation fees associated with a commercial loan.
Commerical property VAT
Commercial property prices are usually quoted exclusive of VAT and a property may or may not be registered for VAT. If a property is registered for VAT, VAT will be payable on top of the agreed price. Stamp Duty Land Tax is payable on the Gross purchase price. You can only claim the VAT back after the purchase if your company is VAT registered.
If you are acquiring an income producing investment property, in certain circumstances it may be possible to mitigate VAT by structuring the purchase so it qualifies as a Transfer Of a Going Concern (TOGC). Where the TOGC rules apply, the purchase of the property fall outside the scope of VAT. This means that no VAT is chargeable, removing the cash flow burden of finding the VAT amount and reducing the additional SDLT that might otherwise be due. TOGC rules are strict, it is therefore important to seek tax advice.
Non domestic Stamp Duty Land Tax
Stamp Duty is a one-off tax that applies to all commercial property transactions over £150,000. You must still send an SDLT return for most transactions under £150,000.
For transactions over £150,000 the amount of Stamp Duty payable is calculated based on a sliding scale. This is as follows:
- For purchases up to £150,000 there is Zero SDLT payable
- The portion from £150,001 to £250,000 attracts a rate of 2%
- The portion above £250,000 attracts a rate of 5%
For example if you buy a freehold commercial property for £275,000, the SDLT is calculated as follows:
- 0% on the first £150,000 = £0
- 2% on the next £100,000 = £2,000
- 5% on the final £25,000 = £1,250
- Total SDLT = £3,250
You can use HM Revenue and Customs’ (HMRC) Stamp Duty Land Tax calculator to work out how much tax you’ll pay.
Business rates are typically paid by the occupier however should the property become vacant, after 3 months you may become liable to pay full business rates. Some properties qualify for extended empty property relief:
- industrial premises are exempt for a further 3 months
- listed buildings - are exempt until they are reoccupied
- buildings with a rateable value under £2,900 - are exempt until re occupied
See the full details of Business Rates Relief on the VOA website. Be aware that if the last owner or occupier has already made the claim for Vacant Property Rates Relief you will not be able to put in a new claim, unless the Relief criteria is triggered again. The rates payable is approximately half the Rateable Value.
The owner will typically insure the building and recharge the occupier the premium. If you are acquiring a vacant property, insurance companies often perceive there is a greater risk so the premium may be higher and you might have an obligation to carry out weekly inspections. We are pleased offer a quotation for this service .
Step 3Negotiate your commercial property purchase
The freehold commercial property market can be competitive and a seller is more likely to be swayed in the direction of a purchaser whose finances are all in order.
We recommend negotiations are done with the help of an agent. We offer a property acquisition service but can only act for you if you are pursuing a property that is not listed with us.
Key points to consider are;
You should check the overall condition of the commercial property for sale, prior to agreeing terms. It is also advisable to seek up to date certification. It may be worth carrying out a building survey to ensure to highlight potential problems requiring remediation.
It is important to confirm the planning position and that it is covers your requirements. Should you require change of use it may be possible to structure a conditional purchase that is "Subject to Planning" .
Interest being purchased
Ensure you know how the property is held before solicitors are instructed. Not every property is sold Freehold. If it is a "Virtual Freehold" it is often a Long Leasehold interest and can come with tenancy obligations for repair, insurance and service charge. Such obligations might affect your level of offer.
If you are acquiring a tenanted investment, be sure you have a full understanding of the occupational tenancy. The terms of the occupational tenancy will influence your offer, the ability to obtain finance and potential to gain possession of the property.
Step 4Finalising the deal
Check the properties eligibility to Capital Allowances and Land Remediation Relief
Capital Allowance If you are purchasing a commercial property, then capital allowances may be available in the form of tax relief. It is no longer possible to claim capital allowances on the actual building, however capital allowances may still be available on Plant and Equipment such as electrical systems, lifts, air conditioning and many other items commonly found in commercial buildings. We recommend you take advice from your Tax Advisor and commercial Conveyancer.
Land Remediation Relief (LRR) can provide tax relief in all commercial property sectors where companies are subject to corporation tax. It provides a deduction of 100%, plus an additional deduction of 50%, for qualifying expenditure incurred by companies in cleaning up land acquired from a third party in a contaminated state. Qualifying costs include the remediation of contaminated land, removal of asbestos from buildings, breaking-out buried structures and the treatment of harmful organisms and naturally occurring contaminants such as Japanese Knotweed, radon and arsenic. Consult your Tax advisor for further details.
Your retained Agent and commercial property Conveyancer shall guide you through the process. The Conveyancer shall recommend commercial property searches and upon completion of all their due diligence shall produce a Report on Title. When you receive the report, you should read it carefully and discuss any aspect of it that you do not understand with your Conveyancer.
Completion of the purchase shall take place once the money to do the deal is in place and all parties are satisfied with the condition of commercial property for sale as well as the contract. The deal will be legally-binding once exchange has taken place.