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How to buy commercial property in the UK
If you’ve got hopes to set up a new business or looking to expand, buying commercial property can put you one step closer to your ambitions. Here, we take a look at what to consider when it comes to buying business property in the UK.
Finding the right commercial property
The right property for your business will inevitably depend on the activities you want to carry out. For example, shops, cafes and restaurants need to be visible to attract customers, while offices and warehouses need to be accessible to staff and deliveries. With that in mind, consider location carefully, make a note of busy periods, traffic and footfall and whether these will help or hinder your business.
You’ll also need to think about the size of the premises, taking into account any particular building or safety regulations. This includes the Health and Safety Executive’s rules which say there must be at least 11 cubic metres of space per person.
Understanding commercial property use classes
Use classes simply describes the activities the building is used for (much like car insurance classes of use). The building you use for your business must match the use class, if it doesn’t, you can apply for a change of use, but this could also mean applying for planning permission.
In September 2020, use classes were revised with some classes revoked. Currently, there are five groups, some of which are split down even further:
- Class B – property used for general industrial activities, storage or distribution.
- Class C – properties where numerous people live or stay, including hotels, residential institutions and houses in multiple occupation (HMOs).
- Class E – buildings used for commercial, business and service activities, including retail shops, eateries, indoor sports.
- Class F – covers buildings used for local community needs and learning such as schools, museums and village halls.
- Sui Generis – this is a catch-all for businesses that carry out very specific activities (sui generis comes from the Latin for something that is unique and in law it applies to anything that is ‘of its own kind’). Properties that fall into this category include cinemas, theatres, arcades, betting shops, concert, bingo, and dance halls.
You can find out more about how some of these groups are sub-divided at the Planning Portal.
Consider service charges
If you’re thinking about buying a commercial property on a business or industrial estate, bear in mind that some will come with service charges to maintain communal areas. You’ll also need to remember to budget for waste collection services which are not automatically covered by your local council, although many councils do offer this as a paid-for service.
If you’ve got expensive stock or are worried about break-ins, you’ll also need to think about security costs.
Factor in facilities
If you’re buying a brand-new commercial space, you’ll need to connect utilities including essentials like electricity and broadband. For buildings already connected to services, don’t forget to find yourself a new commercial energy deal. If you don’t, you could end up on the energy supplier’s default deemed rates tariff – which is typically a lot more expensive than agreeing a fixed-rate plan.
If you’re concerned about potential commercial gas and electricity costs, you can get a good idea of how energy efficient a property is by checking its EPC (energy performance certificate). A-rated buildings are the most energy efficient, while G-rated properties, the least.
On top of all this, you’ll also need to pay for furniture, fixtures and fittings.
Work out Stamp Duty Land Tax (SDLT)
In England and Northern Ireland, all property sales over a certain amount are charged Stamp Duty Land Tax (SDLT). For non-residential properties, that means any property over £150,000.
Commercial properties that cost more than £150,000 are charged more according to a sliding scale. Current SDLT rates are:
- 0% on properties below £150,000.
- 2% on the portion of the purchase price between £151,000 and £250,000.
- 5% on the portion 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.
In Scotland, property sales are charged a Land and Buildings Transaction Tax. In Wales, sales are subject to a Land Transaction Tax.
Check business rates
Most non-residential properties are charged business rates, although there are a few exclusions, for example agricultural buildings and those used for religious reasons.
In England and Wales, business rates are calculated using something called a rateable value which is based on the property’s rental value as of 1st April 2015. (And if you're potentially interested in renting a commercial property, read more here.) That value is then multiplied by a:
- 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.
You can find out more about how business rates work and get help covering the cost at GOV.UK.
For information about business rates in Scotland, head to mygov.scot. For properties in Northern Ireland, go to NIBusinessInfo.co.uk.
Arrange financing and conveyancing
When you’ve found a property you think meets your business needs, you’ll have to arrange a loan or commercial mortgage.
When you apply for any sort of mortgage, you’ll be asked for all sorts of paperwork dating back several months. For commercial mortgages, you’ll also need to show business accounts so that your lender is confident that you can afford to make repayments.
It’s worth noting that in most instances, you’ll need a considerable deposit to secure a commercial mortgage. Plus, as with other loans, a credit check will be run against you.
As well as securing your finances, you’ll need to find a solicitor to manage the conveyancing process (this simply describes the sale process and transferring deeds from the seller to you).
Financing and conveyancing costs you’ll need to factor in, include:
- Loan (mortgage) arrangement fees.
- Valuation fees.
- Solicitor and other legal fees.
Put business insurance in place to protect your investment
Buying a property to fulfill your business dreams is a huge commitment and takes considerable investment, so it’s important to have business insurance that you can rely on. At NimbleFins, our commercial property insurance guide can help you work out what you need so that you can choose a policy with confidence.
And if you're ready to compare quotes, simply fill out one form and our friends at QuoteZone will do the searching for you—which means you can get on with business as usual.