Commercial & Residential Property Tax Changes Summary for Private Investors

The much-vaunted tax changes which have hit the property world in 2016 have left many small investors dazed. The below summary will hopefully clarify the situation and made sense to publish, given that we represent hundreds of hard-working investors whose savings are earning zero returns in the bank.

Residential 'buy-to-let' investment - no longer the obvious choice for small investors

Stamp Duty Land Tax Calculator

Clearly, the government doesn't like private landlords, probably about as much as private landlords don't like being private landlords!

Owning and renting a flat does require active management and compliance with regulations which most simply don't do.

If you want to buy a residential investment, you now will pay an extra 3% up-front on the existing tiered Stamp Duty rate, summarised as follows:

  • @ £250k purchase price: 4% or £10k
  • @£500k purchase price: 6% or £30k
  • @£750k purchase price: 6.7% or £50k
  • @£1M purchase price: 7.4% or £73.75k

In addition, investors who finance their properties (most) will no longer be able to deduct the interest costs from their income for tax purposes from April 2017. This is being phased in over the next few years and basically means that your taxable profit (and therefore tax bill) will rise, despite your actual cash profit being unchanged (well, actually it will fall thanks to the extra tax payable).

If that wasn't enough, they're getting rid of the Wear & Tear allowance which permitted landlords to apply a flat 10% tax-deduction to their net rent to account for upkeep of furnishings, and instead landlords need to account for every penny spent. More headache and less beneficial to the good landlords out there whose properties are in good order and previously enjoyed this deduction.

And just to hammer the final nail in the coffin, whilst Capital Gains Tax has been dropped across the board by 20% (including on commercial and mixed property), this CGT reduction will not apply to residential buy-to-let investors, and higher-rate taxpayers will continue to pay 28% when they sell.

The 2016 Autumn Statement reaffirmed all of the above changes made earlier in the year, and added one more change: Letting agents may no longer charge "letting fees" to tenants. So instead going forwards expect your letting agent to recover that from you!

So if you now feel that the security that residential investment offers (you would always hope to find a tenant) is now outweighed by the management headache, punitive taxation & lower returns, then read on to understand what the deal is for commercial property.

Commercial or Mixed investments - get yourself a better return but know the risks!

stamp-dutyThe stamp duty system for commercial properties and mixed properties (i.e. a shop with flats above) has been changed in favour of smaller investors, as follows:

  • @ £250k purchase price: 0.8% or £2k
  • @£500k purchase price: 2.9% or £14.5k
  • @£750k purchase price: 3.6% or £27k
  • @£1M purchase price: 3.95% or £39.5k

Compared to the old commercial / mixed stamp duty rules, anyone investing up to £1,05m will make a saving, with the greatest savings to be had just above £250k and £500k (the former stamp duty bands).

But when compared with the new residential rates above, the tax saving is even greater, especially considering you can buy mixed investments which contain a fair portion of residential property!

And many investors looking at pure commercial (rather than mixed) properties can enjoy the further tax benefit of acquiring via a Self-Invested Pension Plan (SIPP), meaning that their pre-tax income can be put directly into property without them losing control of which property they buy.

Comm vs ResiWith a new wave of investors now drawn into the hunt for commercial property investments, we are seeing some very high prices being paid in the auction room for what aren't necessarily the most fantastic properties.

Remember that unlike residential property, commercial property will not always have a tenant waiting in the wings, and whilst yes some high streets and towns are thriving, many are not.

We specialise in helping private investors looking for a reasonable but not ridiculous return find that long-term security in commercial property. Properties that we can source privately are good enough to get decent finance on and have realistic chances of being let for the long term and may already have leases of 10 years plus in place to blue-chip tenants with PLC covenant strength.

The commercial leases will be on a Fully Repairing & Insuring basis, which means the tenant is obliged to carry out all maintenance of the property allowing the landlord to just collect the rent. And that means you don't just need to invest in your local area, but you can look nationwide.

We do charge a fee for our services, which include negotiating the deal, assisting with finance and working alongside your lawyer (or specialist ones whom we can recommend), to get the deal done, get your money working for you and give you peace of mind. We can help with insuring and managing the property once it completes, and also in respect to any subsequent rent review negotiations which would usually be up to 5 years down the line.

The most important thing bearing in mind all of the above is to get sight of the deal in the first place. To be kept in the loop and join our private, active investors list, please contact Nilesh on 0203 113 2142 to discuss in detail your requirement. When you call, let us know your budget, preferred location & tenant type and whether you need finance or not. And remember to follow us on Social Media too!


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