Should you buy a shop with a flat to beat buy-to-let tax changes?

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This month (February 2017), The Mail Online discussed the advantages and disadvantages of buying semi-commercial property, such as a shop with a flat above it.

The Mail concluded that semi-commercial property is a viable alternative to conventional buy-to-let properties. Semi-commercial properties are exempt from the tax changes that affect buy-to-let landlords. Semi-commercial and commercial properties are subject to commercial stamp duty, which does not carry the 3% surcharge for residential property second homes.

Properties that have mixed commercial and residential use are also exempt from the reduction in mortgage tax relief changes.

Another advantage is that commercial tenants are normally responsible for maintenance and insurance costs. These tenants tend to sign long leases.

The downside to semi-commercial property is that commercial tenants can be more difficult to find than residential ones. If a landlord finances semi-commercial property with a commercial mortgage, then they will still have to meet the monthly payments if the property is empty for prolonged periods.

Landlords will need to vet their prospective tenants carefully. Financial accounts can be checked at Companies Houses to aid in assessing the ability of the business to afford the rent.

Another disadvantage is that interest rates tend to be higher for commercial mortgages.

There are opportunities for a steady income and high returns in the semi-commercial sector but investments are not without risks. There are many specialist lenders that provide commercial mortgages, and a mortgage broker will have access to these lenders.

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