The Next Move in Property is Commercial Mixed Use, Get Ready for the Move or Face Big Trouble!

England was once ‘a nation of shopkeepers’ according to Napoleon Bonaparte. That was back in the 18th century, but chances are it’s about to ring true again. Or at least British investors will own the rentals for a nation of shopkeepers.

Certainly it looks to be heading that way thanks to the relentless financial assault both the past and present governments are making on residential property investors. First there was George Osborne’s hated Stamp Duty Tax, introduced in April 2016. The 3% on additional homes had its desired effect when thousands of UK-based residential landlords were forced to reel back on their property portfolio expansion plans. To add insult to injury, that crippling 3% didn’t apply to foreign investors, of course – giving those ‘out of towners’ a head start on home-grown residential investors when it came to ‘snapping up’ a nice London luxury new-build.

Osborne v residential landlords: no ‘tax’ stone left unturned

And, of course, Osborne didn’t stop there. Brandishing murderous intent, the former Chancellor of the Exchequer decided to go for the jugular and do away with landlord tax relief as well. 

Starting from April 2017 (on a sliding scale until it comes fully into effect in 2020) landlords who pay higher rate taxes will no longer be eligible for tax relief on buy-to-let properties. This means they will be paying tax on the total rental income from their properties, rather than just the profit – throwing some landlords into loss-making mode and forcing many more thousands to get the hell out of what was once a booming residential property market.

And it’s not just landlords who have suffered. Having just managed to haul itself back onto its feet again post-recession, the construction industry has been left stumbling again, this time post-Brexit. Because once those UK borders have been made impassable for foreigner workers, just who is going to build those thousands of new houses Theresa May’s government recently promised? Not British labourers for such paltry wages, that’s for sure.

But back to the poor residential landlords. Many of these individuals have spent their lives investing in residential property to the extent there’s no alternative career for them to fall back on. The obvious answer for them then is to simply switch sectors – transferring their buying, negotiating and generally honed ‘landlord skills’ from residential property to commercial. 

Why investors are switching from residential to commercial property 

There are several financial reasons for this. Firstly, the Stamp Duty on second properties doesn’t apply to mixed use commercial properties, (ie a corner shop with a residential flat attached) or a fully commercial building investment. 

Secondly, instead of paying a flat rate of stamp duty, commercial buyers are charged according to each band of the property’s value – a new decision introduced in March by that nice Mr Osborne.

This means that an investor would pay ￡14,000 stamp duty on a second home valued at ￡30,000 whereas if that property had a shop or public house attached, the stamp duty would only be ￡4,500. That’s a saving of almost ￡10,000 for the favoured mixed use commercial investor.

Thirdly, tax relief is still available for landlords of mixed-use properties. 

And that’s not all – experts attest that commercial property yields in London are double those of the residential sector at 6% compared to 3%. Add to this the fact that interest on commercial mortgage rates are expected to drop in 2017 and that commercial leases are much longer – with 10, 15 and 25 years the norm - then switching from residential to commercial property investment is what we Brits would routinely refer to as ‘a no-brainer.’ 

Now let me assure you, this migration from residential to commercial investing isn’t just supposition; it’s already begun. London brokers Mortgages for Business revealed a survey they’d conducted on clients within the past few months showed one in five had seriously investigated making the switch. Or, as the company’s David Whitakker so eloquently put it, and practically in a nod to Bonaparte: “It’s not yet a cavalry charge towards the high street but we are starting to see a movement that way."

And once they are there, will residential landlords look back? Probably not. Not only are their tenants likely to be there for the long-term, but they won’t be as much hassle to look after either. A tenant retailer or business wants their premises to look as good as possible in order to attract clients so they’re going to look after it – leaving landlords little to do but look out for their next big commercial investment. 

• A Tip for disgruntled residential landlords

One way for the residential sector to get their own back on the Tory government is to invest in a mixed use commercial property. Then, with planning permission, turn the shop or pub back into a fully residential property. There won’t be a tax bill for extra stamp duty. Job done!

If you are deciding to move to commercial property investment or development we have found a good article that may help you. Moving to commercial property

Blue Alpine Ltd is experienced in mixed use commercial and fully commercial property investment specialists. For further information and an informal chat contact Prash tel 07961853166 or email: [email protected]

We invest, build and trade Commercial Investments and Residential Developments please get in touch to work with us to discuss your requirements.