By: Brad Fults
“In the last 3 years, large numbers of buy-to-let landlords have started investing in Menorcan property,” says a sales manager at Move Menorca. While others are investing in commercial properties. A number of changes happened recently for residential landlords and this has led them to looking at ways to diversify by expanding into commercial space. Here we will take a look at some of the biggest changes.
The government has recently announced that it will raise the stamp duty charged to anyone who buys a second home including those that are buy-to-let properties. Landlords already have to pay a stamp duty charge that is three points above the rates they paid previously.
Previously if you had purchased a £500,000 you wouldn’t have paid any stamp duty charge on the first £12,000. On the next £125,000, you would have paid 2% and then another 5% on the £250,000 that remained. This would mean that you paid a total of £15,000 in those fees. The newest rates are 3%, 5%, and 8%. This increase doubles the total to £30,000.
Depreciation From Wear and Tear
Beginning this April the rules for how a landlord can claim wear and tear has changed so that they can only claim actual costs that were incurred. Previously owners could have claimed an annual deductible for wear and tear whether they had an actual out-of-pocket expense or not. Since the rule changed it is necessary to provide all receipts for cost that you deduct from your taxes.
Capital Gains Tax
The Chancellor recently announced that there will be a cut to the capital gains tax but that it won’t be applied to landlords. The base rate for capital gains tax went from 18% down to 10% and the higher rate fell from 28% to only 20%. Anyone who earns profits from stocks and other similar assets will now pay the lower rates but landlords will not benefit from it. This means that when a landlord sells their property that they will have to pay 8% in fees that others who sell other types of assets will not have to pay.
Auctioneers of commercial properties from companies like Allsop are saying that this is driving many investors because of the new tax laws on buy-to-let properties. Once these investors find out how easy it is they often choose to do it again and again.
Using a Limited Company to Buy Property
Over a hundred thousand landlords chose to buy properties using limited companies last year. 30% of lending was through these limited companies during the first half of the year. Many experts say that mortgages on buy-to-let properties are likely to surge this year because landlords want to avoid excessive taxes and the changes in mortgages. If the government decides to clamp down on these trends it may lead to residential investors looking to invest more heavily in commercial properties.
Key Points to Consider When Investing in Commercial Property
- It’s always necessary to research the commercial property before investing in it.
- The responsibilities residential landlords have versus commercial landlords is different and it is important for the owner to know these differences and make sure they stay on the right side of the law.
- It’s important to consider commercial landlord insurance as it differs from anything involved in residential ownership. The wording will be substantially different and so will its cost.
It’ll be necessary for the investor to understand that there are differences in commercial property and its investment and often a new investors idea is bigger than the reality. Capital growth is always, of course, on the mind of an investor and especially so with residential landlords. Getting into commercial property investing can be a good move if you do it carefully. Like any investment, it is necessary to always do your due diligence and invest responsibly.