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Brexit, VAT and Commercial Property returns

Updated: Apr 30, 2020

Due to changing priorities for investors, commercial property is becoming increasingly attractive. The UK commercial property sector returns can be strong (out-performing the FTSE 100 between 2000 and 2018) and average yields of c.5% remain. Lets exclude the obvious sectors such as retail where yields are suffering from the added risk of increasing costs and the advancement of online sales. Brexit may present an opportunity for industrial premises to perform. These will form the main focus of Brexit activity and in particular surrounding ports due to a re-establishing of traditional trading patterns that have been artificially re-orientated east due to the “Rotterdam Effect” and EU membership.

With stamp duty capped at 5% over £250,000, (where SDLT can reach 12% on residential properties over £1.5m) and loan interest relief still available against commercial rental income, the profit and loss statement of a commercial investment now works very differently to a residential buy to let. VAT bridging and commercial property. If the property is VAT elected you will need to pay this on completion. This can mean another 20% of equity required which on top of the normal 30% equity required under LTV parameters set by a lender, can potentially jeopardise a deal. VAT bridging finance is able to fund this VAT without a charge on the property allowing you to save your equity for the next transaction or to reduce your LTV and therefore your senior cost of borrowing.

Sourcing the right property and planning the purchase could help you maximise returns.

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