Commercial Property Purchase
Discussion
I am looking at a commercial property purchase was previously a CA firm with 5 individual offices. Principal reason is to provide one of the offices to my daughter who is a sole trader for her to work from and pay the rent she currently pays to me instead of the business supplying a room to her at present.
Few questions, do I purchase this as a Ltd company lower corporation tax etc , myself , wife and daughter as shareholders , maybe extract the tax free dividend whilst leaving the capital in the business to accrue until needed sometime in the future when I finally retire.
I could consider purchasing through my SIPP but don't want to complicate matters and just leave my pension accruing until I want to pull the trigger and crystallise unless the more knowledgeable can advise differently.
I have approval in principal for a commercial mortgage at 70% of the valuation however I have sufficient equity that I can release from a couple of BTL (residential) that I have as another means of funding to purchase it outright. Other consideration is interest only or capital and interest basis , appreciate all interest unlike a residential can be offset through a Ltd company purchase.
There is the cost of refurbishment which I would hope around £15K would suffice , do I give this as a director loan and pay back at a commercial loan rate to myself ?
We will hopefully fill the other 4 rooms with people in a similar line of work to my daughter with approx £550 a room PCM
Few questions, do I purchase this as a Ltd company lower corporation tax etc , myself , wife and daughter as shareholders , maybe extract the tax free dividend whilst leaving the capital in the business to accrue until needed sometime in the future when I finally retire.
I could consider purchasing through my SIPP but don't want to complicate matters and just leave my pension accruing until I want to pull the trigger and crystallise unless the more knowledgeable can advise differently.
I have approval in principal for a commercial mortgage at 70% of the valuation however I have sufficient equity that I can release from a couple of BTL (residential) that I have as another means of funding to purchase it outright. Other consideration is interest only or capital and interest basis , appreciate all interest unlike a residential can be offset through a Ltd company purchase.
There is the cost of refurbishment which I would hope around £15K would suffice , do I give this as a director loan and pay back at a commercial loan rate to myself ?
We will hopefully fill the other 4 rooms with people in a similar line of work to my daughter with approx £550 a room PCM
You might want to consider setting up the company and loaning it the money personally, and/or it borrowing on a mortgage.
You can then take money out either as loan repayment, salary to any/all of you, divi according to your tax position year on year.
You can consider gifting shares to your daughter periodically as inheritance planning perhaps.
Big question lots of variables!
What the tax system favours today may not apply tomorrow.
Exit strategy and CGT would be things to have in mind.
I expect this is well out of date, so I'm happy to hear other thoughts.
You can then take money out either as loan repayment, salary to any/all of you, divi according to your tax position year on year.
You can consider gifting shares to your daughter periodically as inheritance planning perhaps.
Big question lots of variables!
What the tax system favours today may not apply tomorrow.
Exit strategy and CGT would be things to have in mind.
I expect this is well out of date, so I'm happy to hear other thoughts.
My personal tax position being that I land in the income bracket that looses my personal allowance and my effective tax is 61% on that portion. From the broker.......If (my emphasis)my daughter trading accounts are strong enough then we could go straight to a commercial mortgage and miss out the bridge part completely.
I would need to see
3 years accounts for the business (she has been trading 3 years but Covid hampered her earning ability)
3 months business bank statements
Business Financial Profile (attached on previous email)
To work out if this business could service the debt alone.
If so happy days – it’s the cheapest way to finance the deal.
If not and you don’t want to do bridging then you will need a few third party unrelated tenants to sign the lease on drawdown and the lender will use the strength of the lease
If we cant use either of these then it needs to be a bridge first.
Please see example quotes based on straight to a commercial mortgage
£XXXX over 20 years on Capital Repayment @ 5%+base = £XXXPM
£XXXXX over 20 years on Interest only @ 5%+base = £XXXPM
A few things to note
Due to the lending amount it lowers the lenders available (higher the borrowing the more lenders)
Some lenders will not offer the interest only option
For us to get this with a tier 1 lender (best rates) there will need to be really strong accounts
If tier 1 lender (best rates) for commercial investment you would be more around the 60% / 65% LTV
However we do have tier 2 lenders who would go up to the 70% on investment or trading and could do capital repayment and or interest only but your rates would be more around 10.5%Mark
£XXXXX over 20 years on Capital Repayment @ 7% +base = £XXXPM
£XXXXX over 20 years on Interest Only @ 7%+base = £XXXPM
I would need to see
3 years accounts for the business (she has been trading 3 years but Covid hampered her earning ability)
3 months business bank statements
Business Financial Profile (attached on previous email)
To work out if this business could service the debt alone.
If so happy days – it’s the cheapest way to finance the deal.
If not and you don’t want to do bridging then you will need a few third party unrelated tenants to sign the lease on drawdown and the lender will use the strength of the lease
If we cant use either of these then it needs to be a bridge first.
Please see example quotes based on straight to a commercial mortgage
£XXXX over 20 years on Capital Repayment @ 5%+base = £XXXPM
£XXXXX over 20 years on Interest only @ 5%+base = £XXXPM
A few things to note
Due to the lending amount it lowers the lenders available (higher the borrowing the more lenders)
Some lenders will not offer the interest only option
For us to get this with a tier 1 lender (best rates) there will need to be really strong accounts
If tier 1 lender (best rates) for commercial investment you would be more around the 60% / 65% LTV
However we do have tier 2 lenders who would go up to the 70% on investment or trading and could do capital repayment and or interest only but your rates would be more around 10.5%Mark
£XXXXX over 20 years on Capital Repayment @ 7% +base = £XXXPM
£XXXXX over 20 years on Interest Only @ 7%+base = £XXXPM
mightymorton said:
My personal tax position being that I land in the income bracket that looses my personal allowance and my effective tax is 61% on that portion. From the broker.......If (my emphasis)my daughter trading accounts are strong enough then we could go straight to a commercial mortgage and miss out the bridge part completely.
I would need to see
3 years accounts for the business (she has been trading 3 years but Covid hampered her earning ability)
3 months business bank statements
Business Financial Profile (attached on previous email)
To work out if this business could service the debt alone.
If so happy days – it’s the cheapest way to finance the deal.
If not and you don’t want to do bridging then you will need a few third party unrelated tenants to sign the lease on drawdown and the lender will use the strength of the lease
If we cant use either of these then it needs to be a bridge first.
Please see example quotes based on straight to a commercial mortgage
£XXXX over 20 years on Capital Repayment @ 5%+base = £XXXPM
£XXXXX over 20 years on Interest only @ 5%+base = £XXXPM
A few things to note
Due to the lending amount it lowers the lenders available (higher the borrowing the more lenders)
Some lenders will not offer the interest only option
For us to get this with a tier 1 lender (best rates) there will need to be really strong accounts
If tier 1 lender (best rates) for commercial investment you would be more around the 60% / 65% LTV
However we do have tier 2 lenders who would go up to the 70% on investment or trading and could do capital repayment and or interest only but your rates would be more around 10.5%Mark
£XXXXX over 20 years on Capital Repayment @ 7% +base = £XXXPM
£XXXXX over 20 years on Interest Only @ 7%+base = £XXXPM
So the business can afford the finance costs or you have lease in place to cover the finance costs.I would need to see
3 years accounts for the business (she has been trading 3 years but Covid hampered her earning ability)
3 months business bank statements
Business Financial Profile (attached on previous email)
To work out if this business could service the debt alone.
If so happy days – it’s the cheapest way to finance the deal.
If not and you don’t want to do bridging then you will need a few third party unrelated tenants to sign the lease on drawdown and the lender will use the strength of the lease
If we cant use either of these then it needs to be a bridge first.
Please see example quotes based on straight to a commercial mortgage
£XXXX over 20 years on Capital Repayment @ 5%+base = £XXXPM
£XXXXX over 20 years on Interest only @ 5%+base = £XXXPM
A few things to note
Due to the lending amount it lowers the lenders available (higher the borrowing the more lenders)
Some lenders will not offer the interest only option
For us to get this with a tier 1 lender (best rates) there will need to be really strong accounts
If tier 1 lender (best rates) for commercial investment you would be more around the 60% / 65% LTV
However we do have tier 2 lenders who would go up to the 70% on investment or trading and could do capital repayment and or interest only but your rates would be more around 10.5%Mark
£XXXXX over 20 years on Capital Repayment @ 7% +base = £XXXPM
£XXXXX over 20 years on Interest Only @ 7%+base = £XXXPM
5% + base rate is still 8.5% (and rising ) Mortgage costs - that seems really high interest rate. Is that for tier 1 lenders if you put 60/65% LTV? (If not how much would internet costs be if you went for tier 1 lenders?)
How much is they offices you are considering buying?
I’m not sure how it stacks up financially paying 9% on a commercial loan
I would base your figures on a 50% LTV loan and an interest rate of around 8%.
Lenders offering interest only are very few and far between and will charge significantly higher rates, the majority of lenders will expect a level of amortisation, (loan balance reduction), over a 5 year period.
Loan interest is deductible irrespective in what entity the property is held.
Lenders offering interest only are very few and far between and will charge significantly higher rates, the majority of lenders will expect a level of amortisation, (loan balance reduction), over a 5 year period.
Loan interest is deductible irrespective in what entity the property is held.
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