What to Consider when Buying a Commercial Property
There are many things to consider when purchasing a commercial property, so do some careful planning before making a decision.
A bit of time planning your purchase could result in big financial savings & tax advantages in the long run.
Below are top 5 tips to think about if you want to buy a commercial property.
Financing
Have you considered your financing options & how each will affect your business plans?
Will you use bridging loans if you need to buy quickly?
Could the company purchase the building outright using its own funds?
What are the opportunity costs of using this cash v. the interest on a mortgage?
Could you personally put the money into the business & charge interest on the loan? You can potentially earn up to £6k of interest tax free per year by charging interest on a loan to your own company, which also reduces the company’s tax bill.
Purchase Options
How are you going to buy the property?
There are numerous options, each one has its own tax benefits & charges.
Will you own the property personally & rent it to your business?
Could you buy this through a SIPP or use a group structure?
Where the property is held in a separate company & rented to your trading business. You would be able to carry out works by another company charging the property company for the cost.
Embedded Capital Allowances
This is a form that your solicitor should fill out for you on the purchase of a commercial property, called a Section 198 Election, it is something that is commonly missed.
This is an election that allows you as the purchaser to claim capital allowances on embedded items, that already exist within the building upon purchase. Such as heating systems, air conditioning systems, security cameras, lifts etc.
You need a specialist valuation of the cost of these, but the process can mean significant you make tax savings from this.
VAT
VAT can be advantageous to the business or detrimental to the business.
Has the property been opted to tax by the seller?
You could opt to tax the property yourself, but then 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.
There are still cases when opting to tax for VAT can be advantageous, however be careful as a change in your business plans could result you having to repay the VAT claimed. For example, if you be converted the property to residential, or sold it to someone who can’t claim back VAT.
End Goal Planning
We often see clients purchasing a commercial property with a plan to develop and sell residential buildings.
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 could be a big cost to your business.
