Sunday, October 1

Why There Are Record Numbers of the Buy-to-let Investors Now Buying Commercial Properties

By: Andy Arthur

The amount of the buy-to-let landlords that have turned their attention to commercial property investments has tripled over the last 3 years.

With the residential landlords which have been hit with several buy-to-let changes over the last few years, many of the investors are in search of ways to maximize their portfolios in the way of either searching for villas for sale in Menorca or another foreign land or entering the commercial-property markets. A few of these main changes are listed below.

1. Stamp Duty

In the earlier part of the year, Government announced that it would increase stamp-duty for people who invest in 2nd homes, which includes the buy-to-let properties. By April this year, all landlords will be forced to pay stamp-duty surcharges on their buy-to-let homes, which will be a 3-percentage point over the previous rate.

If for example, if you purchased a 2nd property before the 1 April 2016, for a price of £500,000, the stamp-duty would have been 0% on the 1st £12,000, 2% on the following £125,000, and 5% of the remainder of the £250,000. The figure works out to be £15,000 in total. The latest rates work out to be 3%, 5% and 8% respectively. This means the tax payable amount would double to £30,000.

2. Wear and Tear

In April of this year, also experienced an implementation of a new rule which means that landlords are only able to claim on the wear-and-tear costs which have already been incurred.

Under previous rules, the landlords were able to deduct annual allowances from taxable profits in association to wear-and-tear, no matter what was spent. The new rules mean you now have to provide receipts that are itemised if you want these costs subtracted from your overall tax.

3. Capital Gains Tax

The Chancellor announced that a portion of the 2016 budget would include a cut to the capital gains taxes, yet these cuts are not applicable to landlords.

Basic rates for capital gains taxes has reduced from 18% to 10%, while higher rates decreased from 28% to 20%. The profits gained from the assets like shares and stocks are now subjected to the lowered tax rates, but this will not apply to properties. The landlords along with homeowners that sell properties are now subjected to an 8% surcharge that people that sell other assets will not face.

Commercial auction partner, George Walker at the property auctioneers known as Allsop stated that they have experienced a lot more investors in their market due to changes to the buy-to-let. As soon as they have purchased 1, they soon find out about the simplicity it offers and this is what encourages them to buy again.

Purchasing properties through limited companies

Over the last year, over 100,000 landlords purchased properties through the limited companies, with the lending to these limited businesses accounting for 30% of all the buy-to-let purchases within the 1st half of this year.

The experts have predicted that the buy-to-let mortgages that come through the limited companies will surge in the year 2018, as the landlords seek to avoid mortgage-lending charges and heavy taxes.

However, if the government decides to clamp-down this growing trend, the residential investors might follow the trend and start to look into the commercial markets.

What you need to consider if you are thinking about commercial property investments

  • The buy-to-let landlords that are thinking about an investment in commercial properties, need to be doing their own research.
  • The responsibilities of the residential landlords are very different to commercial landlords and knowing these differences is essential to ensure you are adhering to the laws.
  • Insurance for commercial landlords is also important, as there are differences in the wording of the policies, costs and endorsements in comparison to the residential-landlord policies.
  • The markets in itself are also different, and the investors’ expectations should also be different. The yield in rental is in most cases a larger factor when it comes to commercial investments, while the capital growths are usually the more important factor for most of the residential landlords.

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