Buy-to-let investors turning to commercial properties

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Following the rise in stamp duty for second homes, some buy-to-let landlords are turning to commercial and semi-commercial properties as they are exempt from stamp duty surcharges.

In the last Budget, Chancellor George Osborne introduced a 3% rise in stamp duty for second homes. He also introduced a band system for commercial property with the stamp duty rate based on which band the properties are in.

The new rates for commercial stamp duty are considerably lower than for buy-to-let house purchases. A landlord buying a £300,000 house to let would pay £14,000 after the stamp duty rise in March, but on a commercial property of the same value, the stamp duty is £4,500. The difference for high-value properties is even greater. A £750,000 buy-to-let house has a stamp duty of £50,000, but the same value commercial property costs £27,000 in stamp duty.

Another reason for landlords to switch to commercial property is that rents are generally 3% higher for commercial renting when compared to residential renting. The incentive is especially strong in London, where this figure rises to 6%.

Investors stepping foot in the commercial sector for the first time are typically buying mixed-use properties, such as shops with flats above them.

A previous barrier to commercial property investing has been the high cost of commercial mortgages, but rates are coming down. Mortgage interest tax relief is available on mixed-use properties.

Many buy-to-let landlords are finding that commercial and semi-commercial properties are an attractive investment opportunity.

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