Investing in commercial real estate for the first time can seem daunting. Between navigating the complex world of mortgages, understanding business rates, and deciphering tax legislation, there is a vast expanse of information to absorb. Yet, the UK government offers several incentives aimed at motivating first-time commercial property buyers, making the venture significantly more attractive. Capitalising on these incentives can make a considerable difference to your investment outcome.
Let us explore the most recent UK government incentives specifically tailored for first-time commercial property buyers, and how you can benefit from them.
Stamp Duty Land Tax Reliefs
When you buy a commercial property in the UK, you must pay Stamp Duty Land Tax (SDLT). However, several SDLT reliefs or exemptions can help reduce the amount of tax you need to pay.
Introduced in July 2021, the SDLT holiday was one of the most high-profile incentives. It was implemented to stimulate the property market amid the economic fallout from the pandemic. This tax holiday ended on September 30, 2021, but its impact was significant. It saved commercial property buyers up to £15,000 by increasing the tax-free threshold to £500,000.
While this specific measure has expired, it’s worth paying attention to the Budget announcements. The government might introduce similar SDLT incentives to stimulate the commercial property market in the future.
Business Rates Relief Scheme
If you’re considering investing in a commercial property for the first time, understanding business rates is crucial. These are the local tax that you’ll need to pay on most non-domestic properties, including shops, offices, pubs, warehouses, and factories.
The UK government, recognising the potential barrier these rates could pose to first-time investors, has instituted several measures over the years to offer relief on business rates. For instance, if you have a property with a low rateable value, you can benefit from small business rate relief.
Another measure to note is the retail discount, relevant for retail, hospitality, and leisure properties. In the 2024/2025 tax year, businesses in these sectors can get a 50% discount on their business rates, up to a maximum of £110,000. There’s also the extended retail discount, which grants eligible businesses a 66% discount for the tax year 2023/2024.
Capital Allowances
When you buy a commercial property, it’s not just the building itself that you’re investing in. You’re also acquiring the fixtures and integral features, such as electrical systems, heating, and security systems.
Capital allowances let you deduct some of these costs from your taxable profits, thus reducing your income tax bill. The Annual Investment Allowance, for instance, allows businesses to deduct the full value of qualifying plant and machinery, up to a certain limit. The limit, as of the 2023/2024 tax year, is £1 million.
Capital allowances can be complex, as not all assets qualify, and different allowances apply to different types of assets. Therefore, it’s crucial to seek professional advice to ensure you maximise this incentive.
Commercial Property Mortgages Incentives
Accessing a commercial mortgage is often a necessary step for first-time commercial property buyers. The government recognises this and has introduced incentives to make it easier to obtain a mortgage.
The cornerstone of these incentives is the British Business Bank’s Enterprise Finance Guarantee. This scheme encourages lenders to finance smaller businesses looking to invest in commercial properties by guaranteeing 75% of the loan value. This way, businesses that lack the necessary security can still access the finance they require.
Government Grants and Schemes
Besides tax relief and mortgage incentives, the UK government also has a range of grants and schemes to help first-time commercial property buyers.
One of the key schemes to consider is the Public Works Loan Board (PWLB), which provides low-cost loans to public sector entities for capital projects. If you’re a social enterprise or a community interest company, you may be eligible for a PWLB loan.
There are also region-specific grants, such as the Growing Places fund in England. This fund provides loans to support key infrastructure projects, including commercial property developments.
In Scotland, the Scottish Property Support Fund offers business support, including property-related advice and potential grant funding.
Remember, property investment is a long-term venture. It can be complex, but with the government’s various incentives, the journey can become less daunting and more rewarding. Enjoy the journey of exploring these incentives and building your commercial property portfolio.
The Help to Buy Scheme for Commercial Properties
The Help to Buy scheme, primarily known for aiding residential property buyers, has been extended to include the commercial property market. This initiative aims to reduce the barriers for first-time commercial property buyers by providing an equity loan, making your first big investment in the property market significantly easier.
Under this scheme, the UK government offers a sizable loan – up to 20% of the purchase price in England and up to 40% in London. This is a considerable helping hand, especially considering that commercial properties often come with a hefty price tag. The significant advantage of this scheme is that the equity loan is interest-free for the first five years, reducing the initial financial strain.
The caveat is that the scheme can only be used for new build commercial properties, and the purchase price must not exceed £600,000. Nonetheless, it’s a fantastic opportunity for those wishing to invest in the commercial property market for the first time. For instance, it could be a springboard for young entrepreneurs who are looking to own and operate their business premises, instead of losing money on rental income.
Before proceeding with the Help to Buy scheme, it’s essential to perform due diligence. Check whether the scheme is right for your circumstances and seek professional advice if needed. The scheme’s specifics may vary depending on where in the UK you wish to buy property, so make sure to familiarize yourself with the local conditions.
Incentives for Limited Companies Buying Commercial Properties
Buying commercial property through a limited company could be another viable option for first-time buyers. The main reason behind this is that companies are liable to pay Corporation Tax, which is typically lower than personal tax rates. This can lead to significant tax savings over time.
In addition, limited companies can obtain relief on mortgage interest payments, making it more cost-effective to buy a commercial property. This can be particularly beneficial for businesses that are just starting and need to watch their cash flow carefully.
However, it’s not a one-size-fits-all solution. While buying as a limited company has its benefits, it also comes with added responsibilities. For instance, you’ll need to deal with more paperwork and legal formalities, and there’s also the issue of double taxation if you want to withdraw profits from the company.
Again, it’s essential to seek professional advice to decide if this route is the best for your circumstances. Buying a commercial property is a significant decision, and you need to understand all the implications before proceeding.
Conclusion
The decision to buy commercial property for the first time is a major one, involving a significant financial commitment. However, the UK government’s various incentives make this process more accessible and less intimidating.
From Stamp Duty Land Tax reliefs to the Help to Buy scheme and incentives for limited companies, there are numerous ways to ease the financial burden. Remember to explore all these options thoroughly and seek professional advice to ensure you are making the most of all available benefits.
Consider your long-term business goals, financial situation, and the type of commercial property that you wish to invest in. With careful planning and the right support, your first foray into the commercial property market can be a prosperous and rewarding venture.
