Paul Keddy, Consultant Mortgage Broker at Mortgages for Business explains how you can purchase a rental property post April 1st, without incurring the 3% stamp duty surcharge.
With the 3% stamp duty surcharge looming it is no surprise investors are starting to look at new ways to cut costs, but did you know that not all rental property will incur this rise in tax?
Semi-commercial property, more commonly known in the industry as “mixed use” property is exempt from the stamp duty surcharge because it is not classed as residential, even though it has both a residential and commercial element.
Technically speaking mixed use properties are classed as commercial properties. Here are some examples of what that means in terms of stamp duty payable from 1st April 2016:
| Stamp duty payable | ||
| Property purchase price | Standard buy to let (Residential investment) |
Mixed use property (Commercial investment) |
| £250,000 | £10,000 | £7,500 |
| £350,000 | £18,000 | £10,500 |
| £500,000 | £30,000 | £20,000 |
To help you calculate how much stamp duty is payable on purchases of both residential and non-residential we have created the following tools:
>> Residential Stamp Duty Calculator
Includes how much you pay both before and after 1st April 2016.
>> Non-Residential Stamp Duty Calculator
The 3% stamp duty surcharge does not apply to commercial and semi-commercial property.
Types of mixed use properties
As the names semi-commercial and mixed use suggest, these properties consist of a mixture of both residential and commercial elements. For example:
- Shops, restaurants and offices with flats above
e.g. A two-bed flat above a hairdressers. It is worth noting that lenders do take the business type into consideration - for example you may find it easier to get a mortgage for a flat above an estate agents than for a flat above a curry house.
- Pubs with self-contained living areas
e.g. A pub with a living area for the landlord.
- Holiday parks with residential accommodation
e.g. A caravan park where the owner has permanent residence
- Guest houses and B&Bs with owners accommodation
e.g. A bed an breakfast where the owner has permanent residence
- Home based health and beauty clinics
e.g. A main residence with a large area converted into a salon. As a general rule properties are only considered semi-commercial when more than 40% of the property is commercial. So, if for example you are only using your spare bedroom as a salon, this would still be classed as a residential property and not semi-commercial.
Yields for mixed use property
Not only are semi-commercial properties not subject to the stamp duty surcharge, research shows that as an asset class they tend to perform better than standard buy to let property.
Source: Complex Buy to Let Index, Mortgages for Business
Over the four years beginning January 2012 to the end of December 2015 gross yields on semi-commercial property were averaging 7.49% compared to 6.15% for vanilla buy to let property.
Applying for a mortgage for mixed use property:
Buy to let mortgages are not available for mixed use properties. Instead you will need to apply for a commercial mortgage. Rates will be tailored to the proposition but expect to pay between 4-6% plus fees of 1.5-2% of the loan amount.
>> How to apply for a commercial mortgage
If you are looking for finance on a mixed use property and want to discuss the options, timescales and pricing, do get in touch with me directly on 01732 471655.
