Buy-to-let landlords have switched their attention to commercial and semi-commercial property across the south west in a bid to escape the stamp duty rise.
That’s the verdict of commercial property estate agent Charles Darrow who has noticed a growing trend in landlords buying commercial properties to beat tax hikes.
The Government introduced a surcharge of three per cent on April 1 for people owning second homes and residential buy-to-let investments.
But an influx of people are now turning to commercial and semi-commercial property because they are exempt from the surcharge.
This means that people who invest in these property types will be faced with a lower tax bill.
These types of properties have generated added interest because of falling commercial mortgage rates and new tax rules.
Charles Darrow director Paul Heather has witnessed first-hand how George Osborne’s move to reform the stamp duty regime has triggered a dramatic rise in demand for commercial property.
He said: “With higher yields it is no surprise that there has been a sizeable shift towards the more complex property types.
“The interest in commercial and semi-commercial property may also have grown because these asset classes do not incur the stamp duty surcharge imposed on residential property.”
New rules mean buyers are now charged a different rate for each band of the property’s value instead of paying a flat rate.
Since the introduction of the second-home surcharge in April, a purchaser of a £300,000 buy-to-let property would shell out £14,000 in stamp duty, while a buyer of a mixed-use property would cough up just £4,500.
And given that the commercial yields are often significantly higher than residential yields, the trend of investors turning to mixed-use and commercial options is expected to continue.
While some investors might still be fazed by snapping up straightforward commercial properties, semi-commercial investments, such as a shop with a flat above or a pub that has been converted into a shop and flats, might prove more enticing.
Heather added: “The flat above the shop is a good entry point for new investors coming into the commercial property market. Depending on the type of tenant in the shop, it’s a nice halfway house between commercial and residential investment.
“You’ve got two different types of property, so it’s an easy way for someone to diversify and reduce their risk – and stamp duty on commercial property is now looking quite attractive.
“We have certainly seen a rise in demand for commercial properties from those investors seeking to get around the new level of stamp duty.”