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Commercial and mixed use properties – tax advantages?

Commercial and mixed use properties – tax advantages?
The buy-to-let market has been subject to significant tax changes over the past few years.  Existing landlords and those thinking of entering the industry feel hard done to by the introduction of the 3% stamp duty surcharge introduced in April 2016 on second homes and residential investment properties.  This coupled with the stress and affordability test which came into force on 1 January 2017, and the buy-to-let tax relief changes which were implemented in April 2017 are forcing some investors to consider their options.
The 3% stamp duty surcharge has significantly dampened property-buying activity.  However, as the surcharge applies only to residential property, investors have increasingly been looking into investing in commercial or semi-commercial (mixed use) property.
Lisa Wilson, Tax Partner at Cowgill Holloway looks briefly at some of the tax implications of investing in commercial and mixed use properties.
Stamp duty surcharge
Both commercial and mixed use properties are exempt from the 3% surcharge.  Therefore, flats above shops, for example avoid the extra stamp duty.  This has caused many buy-to-let landlords who wish to remain in the residential market to look at mixed use property as an alternative to conventional buy-to-let.
In addition, some investors have bought commercial property, thereby avoiding the surcharge, with a view to obtaining planning permission to convert the property for residential use.  This has the potential to prove a cost-effective way of ultimately obtaining a residential property but the investor needs to be comfortable with the fact that they could end up with a commercial investment if planning permission is not granted.
Mortgage tax relief
Investors in mixed use properties will be affected less hard by the mortgage tax relief changes which hit landlords of residential properties in April 2017.
Previously, landlords have been able to claim tax relief for finance costs on buy-to-let mortgage payments when they completed their tax return, allowing them to offset mortgage interest against rental income.  This has changed from April 2017 with the effect that by 2020 landlords will be subject to much higher effective rates of tax if they are already higher rate (40% / 45%) tax payers and have buy-to-let mortgages.
However, these changes do not apply to commercial properties and for mixed use properties, the commercial part of the property will be exempt from the changes.  Essentially, you will still be able to claim tax relief for loan finance costs relating to the commercial part of the property. Care should be taken in apportioning loan finance costs between commercial and residential parts of a development as the legislation governing this is somewhat opaque. We would recommend that that you seek professional advice on this given the fact that the legislation is untested in this area.
For more information on the tax treatment of your property investments, whether residential, commercial or mixed use, or for advice on any other tax matter please contact Lisa Wilson, Tax Partner at Cowgill Holloway on 01204 414243 or by email lisa.wilson@cowgills.co.uk.

This article is for general guidance only. It provides an outline, and may not include points which are important to your situation. You should not depend on this blog without taking advice based on the full facts of your case. The information given was correct at the time of publication.


The information was correct at time of publishing but may now be out of date.

Posted by Cowgills
18th April, 2017
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