A Stamp Duty Land Tax surcharge of 3% was introduced 1 April 2016. This has made investments in second homes and buy-to-let properties more expensive for landlords. However, it appears that there is a loophole and investors are already changing their investment strategies to exploit this.
Commercial and semi-commercial properties are exempt from the stamp duty surcharge making shops with flats above them an attractive prospect. Add to this the fact that commercial mortgage rates are falling and this type of property looks even more interesting to investors. Recent research suggests that the number of investors considering semi-commercial property is on the rise.
Many commercial properties can seem like an intimidating prospect to inexperienced investors. But a shop with a flat above it perhaps less so. New or occasional investors will also find commercial yields very appealing as they can be higher than those for residential properties. Semi-commercial property provides an opportunity for investors to build a diverse portfolio.
Change of Use
Investors should also look closely at the potential for changing the use of commercial properties. In some cases converting commercial properties into flats could result in greater capital growth. Before purchasing a property with a view to converting it into dwellings, investors must bear in mind that planning permission might not be granted.
It can be harder to gain a mortgage on a commercial property but it is possible that more institutions will start to offer commercial mortgages in the near future. This could be very good news for investors, particularly when you consider the income tax implications. Landlords who are higher rate tax payers cannot now deduct their mortgage interest from their rental income from residential properties before calculating their tax bill. This is leading many investors to set up limited compaies for the purpose of investment as businesses pay lower taxes. However, individuals can continue to claim mortgage interest relief on income from mixed-use properties.
It will be interesting to see how investors react to the recent changes to the tax regime in the UK. Many may find themselves turning to semi-commercial properties in order to mitigate their tax burden and, perhaps, to spread their risks.