A NEW higher set of stamp duty land tax rates (surcharge rates) was applied to dwellings that qualify as additional residential properties (ARPs) from 1 April 2016. As well as buy-to-let (BTL) properties and second homes, the surcharge applies to all purchasers of dwellings by companies, commercial partnerships and trustees of discretionary trusts, where those properties will not be the only property owned by them.
The surcharge is three per cent on the purchase price of the additional residential property if it costs more than £40,000.
The higher rates are shown in the table:
It is worth noting that the supplemental three per cent charge does not apply to purchases of mixed use or non-residential properties. The HMRC defines mixed use property as ‘one that has both residential and non-residential elements’.
So the types of property that would meet that definition could be, for example, a shop, office, restaurant or doctor’s surgery with a flat above. On such properties or commercial properties the stamp duty land tax is lower, and only bites on properties costing £150,000 or more. Additional commercial properties do not have the surcharge imposed on residential BTLs, referred to above.
A slab system applies to commercial property purchases. The rates are two per cent for properties between £150,000 and £250,000 and five per cent for those over £250,000 so the stamp duty land tax on a purchase can still be a heavy burden, but not as heavy as with purely residential property. The tax changes on residential property have placed a greater financial burden on landlords.
The impact of the surcharge, has led to a rise in instructions from previous BTL investors who are now choosing to diversify and enter the commercial property market. Commercial property comes with various benefits; commercial landlords can off-set their income tax on the rent at a higher rate, the yields are higher (typically around 7.6 per cent compared to six per cent residential BTL) and the leases are longer, with leases of five years typical and 15 years common.
For example, if you rent your shop to a tenant for £25,000, you will receive that £25,000. With residential property you need to deduct all sorts of costs including for maintenance.
There is a wide variety of mixed-use properties available to investors, including pubs with self-contained living areas and some caravan parks and guesthouses.
If you are looking to enter into the commercial property market as an investor then contact Jatinder Kandola, who specialises in commercial property and will be happy to discuss your requirements,on 01604 622101.
