How to buy commercial property in the UK

Getting onto the commercial property ladder in the UK can be a daunting task. It’s significantly more complicated than buying a residential property, between classes of use, stamp duty land tax, business rates and commercial property building insurance to consider. Here’s what to keep in mind when it comes to buying business premises in the UK.

Choose the right commercial property

Location is hugely important when it comes to commercial property but what’s right for a business will inevitably depend on the nature of the business. When weighing up different areas, consider how local footfall, parking and traffic are likely to affect the business. Also think about access for deliveries, particularly if stock arrives in large trucks.

As well as outside space, consider the internal space that might be needed. For example, the Health and Safety Executive has rules which say there must be at least 11 cubic metres of space per person.

Check if the property can be used for the business activities

Any commercial property has to be suitable for the business activities that will be carried out. This suitability is known as a property’s ‘use class’ and there are five groups, some of which are split out even further:

  • Class B – general industrial activities, storage or distribution.
  • Class C – includes hotels, residential institutions and houses in multiple occupation (HMOs).
  • Class E – commercial, business and service activities, including shops, cafes, restaurants and indoor sports.
  • Class F – buildings used for community and learning activities, for instance, schools, museums and village halls.
  • Sui Generis – this is a Latin term and in law, it applies to anything that is ‘of its own kind’. This use class includes properties like cinemas, arcades, betting shops, bingo and dance halls.

If a building currently has a different use class that isn’t applicable for the activities going forward, it may be possible to change it, but this could also mean applying for planning permission.

Find out more about use classes at the Planning Portal.

Work out service charges, utility costs and other facilities

If a property is found in a suitable location, remember to factor in extra costs and not just its purchase price. This can include service charges to maintain communal areas if the building is on a business or industrial estate.

Other costs include waste collection services, utilities, furniture and other fixtures and fittings. If break-ins could be a problem, think about building and site security as well.

Calculate Stamp Duty Land Tax (SDLT)

In England and Northern Ireland, if a commercial property purchase is more than £150,000, Stamp Duty Land Tax (SDLT) is owed. Properties over £150,000 are charged more according to set increments:

  • 0% on properties below £150,000.
  • 2% on the next portion up to £250,000.
  • 5% on the amount over £250,000.

For example:

  • A commercial property costs £300,000.
  • 0% is charged on the first £150,000 (£0).
  • 2% is charged on the next £100,000 (£2,500).
  • 5% is charged on the remaining £50,000 (£2,500).
  • Total SDLT owed is £5,000.

If buying property in Scotland, instead of SDLT, the new building owner pays a Land and Buildings Transaction Tax, and in Wales, it’s called a Land Transaction Tax.

Check business rates

In England and Wales, most non-residential properties are charged business rates using something called a rateable value. This is based on the property’s rental value as of 1st April 2015; the figure is then multiplied by one of two multipliers:

  • Standard business multiplier – currently 51.2p and applies to business with a rateable value of £51,000 or more.
  • Small business multiplier – currently 49.9p and applies to businesses with a rateable value of less than £51,000.

For more information about how business rates are calculated, as well as exemptions and tax relief, go to:

  • UK for properties in England and Wales.
  • scot for properties in Scotland.
  • for properties in Northern Ireland.

Arrange financing and conveyancing

Unless it’s a cash purchase, the new building owner will need to apply for a loan or commercial mortgage. It’s worth bearing in mind a hefty deposit is needed for a commercial mortgage, as are business accounts proving that the repayments can be made.

It’s also necessary to hire a solicitor or conveyancer to manage the purchase process (known as conveyancing) so don’t forget to budget for these costs, too.

Compare business insurance to protect the investment

Property is a considerable investment, especially if it’s integral to business plans, which is why it’s crucial to have the right insurance in place. To help make informed decisions about what policy might be right, take a look at NimbleFins’ informative commercial property insurance guide, where it’s also possible to get quotes.

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