Commercial / Residential Property

[cookie]

Hi,

As a newbie landlord, I am currently letting out one residential property but now have the opportunity to purchase a corner terrace property with a 'take away' business on the ground floor with a studio flat behind it, which is occupied by the owner of the take away, and upstairs is a one bed residential flat - accessed via a separate entrance.

Both properties are let, the one bed flat is on an assured short hold tennancy and has been occupied for 11 years, the business / studio has been occupied for the last 6 years and a 3 year contract is included with the sale.

Are there any issues I should be aware of regarding letting out a commercial property compared with residential? Is there a difference in taxation, insurance, fire regs, liabilities of any sort?

Any advise would be appreciated,

Many Thanks.

[Simon Dewsberry]

you will notice a big difference in mortgage criteria!

[GPEL]

There'll be no landlord repair obligations for the commercial property if let on a full repairing lease.

[plym77]

Hi Cookie

From a tax perspective you will still need to report the commercial and residential profits on your tax return (assuming you own the properties personally), however, from a Capital Taxes point of view renting out commercial property is alot more favourable from a tax perspective for various reasons - for example, qualifying commercial property which has been held for more than 2 years (providing criteria is met) would attract full business asset taper relief, exempting 75% of the gain on sale, compared with a maximum exemption of 40% after 10 years for residential property. There are other tax advantages to commercial property too.

Additionally, commercial (not residential property) property can be put into a pension, whether in fully or partially, depending on your circumstances.

You should also consider whether the way in which you currently own the property is the most tax efficient - for example, are you married? are you a higher rate tax payer and your spouse basic rate? As a new

I think it would be useful for you to visit a tax adviser to discuss the specific options available to you to ensure that you are in the most tax efficient position, taking into consideration your needs. You can of course just prepare your tax return each year yourself, however it may be useful to review whether you are in the most tax efficient position.

Where are you based? I would be happy to discuss your position with you either by personal meeting (Cheltenham or Bristol) or by telephone conference call. Please feel free to email me on sherena.glanton@horwath.co.uk to discuss this further. For your information I am a Chartered Tax Adviser and resident property tax expert!

Kind regards

Sherena

[cookie]

Hi,

Thanks for the replies; I'm funding the purchase privately so fortunately don't need to look at commercial mortgages.

I was made redundant a few months ago, hence the foray into property, so the only income I have is the rent on my first property, so my tax position is currently at the standard rate.

I'm in the process of looking for an accountant in the York area that has specialist knowledge of landlord accounting and tax issues, but I would be interested to know whether people who own multiple properties put them in their own name or with a partner or in Ltd Company and the reasons for this.

Cheers,

Cookie

[plym77]

Hi Cookie

Generally speaking it is not a good idea to put rental properties into a company. This is because on sale, the profit is only reduced by indexation, as opposed to getting Tper Relief and CGT Annual Exemptions personally.

Additionally, as you already have the properties, to put them into a limited company could result in a further Stamp Duty Land Tax charge.

This said a company can often be used in other ways to siphen of profits into a lower tax band, for example, a management company.

Additionally, if you intend to build on your portfolio then you can (depending on circumstances) with the right structure get the best of both worlds - personal capital gains, but corporate taxation on all of the profits. This is a specialised structure and very complicated and tailored and would be very difficult to cover generally on this forum. This usually only works for future properties as currently owned properties could cause Stamp Duty issues if put into this type of structure.

Also, I note that you are funding the commercial property privately. Do you have a mortgage on your own home? If so, it can be possible to claim some or all of the mortgage interest paid on your own home against your rental busines, depending on circumstances.

If you do not have any luck with finding a local specialist, I am a property tax specialist and I do have clients further afield than Gloucestershire. These days you dont necessarily have to 'meet' your accountant, most things can be done by telephone meeting and email. I work for a reputable National Firm of Chartered Accountants. Please do feel free to contact me, should you be interested.

I hope this helps

Regards

Sherena Glanton CTA

[Chris Knight]

I suggest that you you get the complete property insured under one (Commercial Property Owners) policy. We can assist with quotation to give you an indication for cost and cover available - but always wise to shop around as well.

www.leaseguard.net