Beat the Budget Changes With a Flat Above a Shop


Simon Misiewicz

4th January 2017

Investment advice on Budget changes from Optimise Accountants

The budget announcements of last year have prompted many property investors I’m advising as a property tax expert to look beyond ‘vanilla’ buy-to-let investments and to consider commercial or semi-commercial property types.

According to the latest six-monthly Property Investor Survey published by specialist broker Mortgages for Business in June, the number of respondents planning to invest in vanilla buy-to-lets fell to 79% in May, down from 83% in its previous survey in November.

Already, it found that the number of investors owning semi-commercial and commercial property had increased in the aftermath of the budget changes, rising to 14% and 10%, respectively, compared with 12% and 9% last November.

The mixed use option

While commercial property can seem intimidating for investors who’ve previously only invested in single let buy-to-let properties, semi-commercial properties such as shops with a flat above them can prove a good way of getting started in commercial property investment.

Flats above shops typically provide higher yields than flats of a comparable size in the same area, and I believe they can provide an excellent introduction to the savvy property investor today.

According to Mortgages for Business’s Complex Buy to Let Index, over the four years between January 2012 and the end of December 2015, gross yields on semi-commercial property averaged 7.49%, compared with 6.15% for vanilla buy-to-lets. As a property tax specialist, I recommend considering commercial.

It’s worth noting that as an investor, you’ll probably have to pay a higher interest rate than you would for a buy-to-let property as you’ll need commercial finance, although thanks to the increase in limited company lending for residential property, commercial lending rates are becoming more competitive.

Stamp duty savings

There’s now a big added bonus for semi-commercial investors and that’s the large stamp duty savings available. Mixed use buildings such as those with a shop and a flat above are liable for commercial rather than residential stamp duty rates. As a proeprty tax expert, I’d say this is a solid investment option.

Although last year’s budget was bad for residential investors — introducing a 3% stamp duty surcharge on any second home or buy-to-let property — it was good for commercial investors, as the government replaced the old ‘slab-based’ system with a ‘banding’ system.

This now means that anyone buying a property worth less than £1 million will be better off.

If you purchase a residential property worth £400,000 as a buy-to-let, you’ll be hit with a £22,000 stamp duty bill. If, however, you buy a £400,000 mixed use building such as a shop and a flat, you’ll pay just £9,500. As a property tax expert, the best option is clear to see.

Developing commercial awareness

Although buy-to-let investors will likely be comfortable with the due diligence necessary on the residential portion of a mixed-use shop-and-flat purchase, the commercial element could prove more challenging.

Determining the value of a commercial property is much more difficult than determining the value of a residential property, where comparing recent sold prices on search portals can provide you with a pretty good idea of it’s worth in less than half an hour.

Some types of business are difficult to secure finance on, for example, restaurants and take-aways due to the fire risks associated with such businesses. Get in touch with me directly here to discuss this further.

The upside of commercial property is that once you’ve ensured you have the right tenant for your shop, you should find management of the premises far easier than it is for residential property.

Most commercial leases require tenants to be responsible for maintenance, so there are far less demands on your time and your wallet than there are for residential property.

To find out more about commercial property investment, and how our team of property tax accountants can advise further, please feel free to get in touch here.


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