Stamp Duty Land Tax
Stamp Duty Land Tax (SDLT) is a charge on a property transaction paid by the buyer.
You’ll have to pay Stamp Duty Land Tax if you buy a commercial property worth £150,000 or more. You will be charged 2% Stamp Duty on any commercial property worth between £150,000 and £250,000. If you buy commercial property worth more than £250,000, you’ll be charged a further 5% Stamp Duty on the remainder of its value.
The amount of Stamp Duty you’ll have to pay also depends on whether the property is freehold or leasehold.
If you want to work out how much Stamp Duty you’ll need to pay, you can use reallymoving’s Stamp Duty Land Tax calculator.
Bear in mind that Stamp Duty applies in England and Northern Ireland. The equivalents are Land and Buildings Transaction Tax (LBTT) in Scotland and Land Transaction Tax in Wales.
Business rates
Another tax you’ll probably need to pay on your new commercial property is business rates.
Business rates are a tax on most commercial properties in England and Wales. They are paid by the occupier of the property.
A property’s rateable value determines what you’ll need to pay in business rates. The rateable value reflects its rental value on the open market, as estimated by the Valuation Office Agency (VOA).
Several factors can affect your rateable value, including:
- The size of the premises
- The type of your business
- The value of any equipment or machinery on-site
A higher rateable value usually means you’ll pay more in business rates.
Your business rates are calculated by applying a multiplier to your rateable value. This multiplier is set by the government each year in line with inflation.
As of 2022/23, the standard multiplier is 51.2p, while the small business multiplier is 49.9p. The multipliers will be frozen at this rate until 31 March 2023.
It may be that, in the long term, you’re planning to rent out your commercial property to another business. To save money, you could pass your business rates bill on to your tenants.
Alternatively, if you plan to use the building for your own business, you can apply for exemptions such as small business relief. You may also be eligible for business rates relief if you’re starting up in business.
You should seek advice from a commercial property solicitor. They can help you claim any business rates relief or exemptions that you may qualify for.
Renovations and building work
Once you’ve bought your commercial property, you’ll need to make it work for your business or for future tenants.
You may want to alter the type of business use for your commercial property. Perhaps that means turning a bank into a restaurant, or a shop into a post office.
All commercial property has a planning use class. Planning use classes set out which type of business can operate from the property.
Changing a commercial property’s existing purpose into another purpose is known as a change of use. A change of use can happen within the same use class, such as from a shop (Use Class A1) to a post office (Use Class A1), or from one use class to another, such as from a bank (Use Class A2) to a restaurant (Use Class A3).
Generally, you’ll need to get planning permission to change a commercial property from one use class to another. A planning application for a change of use of commercial property usually costs £96. It can rise to £206 if the change of use requires building work.
Of course, the cost of renovations will vary in each case and depends on the extent of the building work. You should factor into your budget the cost of any work needed to make the property suitable for your business purposes, especially if it is likely to be substantial.
You will need to make sure the site meets health and safety regulations before you open for business, regardless of what you plan to do with your commercial property. Before buying the property, you should check how much it would cost to bring it up to standard.
A commercial property solicitor can help give you an idea of how much any building work might cost. They can also help you understand whether it would be a good investment.
Ongoing costs
There are many ongoing costs associated with owning commercial property that you should factor into your budget, including:
- Insurance payments
- Repairs and maintenance
- Energy costs
- Service charges, such as waste collection
Most of these costs will be specific to the commercial property you’re interested in and where it’s located. However, you can get a good sense of what a property’s energy costs are likely to be by looking at its Energy Performance Certificate (EPC).
The EPC tells you how energy efficient a property is. An A rating is the most efficient, while a G rating is the least efficient. Take this rating into account when planning a budget for your commercial property’s energy costs.
EPCs are a legal requirement if you are renting, selling, or building a property in the UK. Learn more about how much an EPC costs using reallymoving’s guide.
Legal advice
An essential cost you’ll need to account for is the advice of a commercial estate agent and a solicitor. They can help you navigate regulations, understand the likely cost of building work, and identify any tax relief you may be eligible for. They can also help you decide whether your plans for the commercial property would make it a good investment.
Are you looking for legal advice? Find a solicitor to help you with buying commercial property on The Law Superstore.
Is commercial property still a good investment?
Investing in commercial property remains a viable option for many, offering the potential for significant returns. However, like any investment, it’s essential to understand the costs and risks involved.
What are the pitfalls of buying commercial property?
Buying commercial property can be complex, with various potential pitfalls. Being aware of these risks, including fluctuating market values, maintenance costs, and regulatory compliance, is crucial to making a successful investment.