How to buy the premises you trade from

The monthly mortgage payment on a building you buy at £600,000 with a 70% facility over twenty years will often sit below the rent on the same building. That comparison is real but incomplete.

As an owner you take on the repairing obligations that were previously the landlord's — the roof, the structure, the plant — plus buildings insurance and any service charge on a shared estate. Budget one to two per cent of value a year for maintenance and you will not be far out.

Against that, you are buying an asset that may appreciate, you remove the risk of a rent review or a landlord who will not renew, and the interest is an allowable business expense. On most owner-occupier cases the arithmetic favours buying, but do it honestly.

Three common structures. In the trading company: simplest, but it exposes the property to the trading risk, and it complicates a future sale of the business.

In a separate company owned by the same shareholders, leasing to the trading company: keeps the asset out of the trading risk, creates rental income, and is much cleaner if you later sell the trade and keep the building. This is the most common structure for a reason.

In a SIPP or SSAS pension, leasing to the trading company: the pension can borrow up to 50% of its net asset value, the rent is an allowable business expense, and the rental income and any growth are inside the pension wrapper. The rules on rent, valuation and connected-party transactions are strict, and it needs your pension trustee and accountant involved from the start.

Choose before you offer. Moving the property between structures afterwards is a sale, with stamp duty land tax and potentially capital gains attached.

Owner-occupier lending is assessed on the business's adjusted profit, with the rent you will stop paying added back as available income. That last point matters: a business paying £48,000 a year in rent effectively has £48,000 more to service a mortgage with, and lenders do count it.

You will typically be able to borrow up to 70% or 75% of value, subject to that affordability. Where you need more, some lenders will consider additional security over another property or a government-backed guarantee scheme.

Stamp duty land tax on commercial property is charged on a banded basis and is a significant number on a mid-sized unit — check the current rates for the purchase price before you commit. VAT may also be chargeable if the seller has opted to tax, which affects your cash flow even where you can reclaim it.

Then the arrangement fee at 1% to 2%, the valuation, your legal fees, the lender's legal fees, and a survey if the building is older. Six to eight per cent of the purchase price in total costs is a reasonable planning figure.

Six to twelve weeks from submission to completion is normal, because the lender is assessing your trading performance as well as the property, and the valuation is a fuller instruction than on a residential purchase.

If the seller will not wait that long — and landlords selling to a sitting tenant frequently will not — a bridge to term is the standard route: complete quickly on a bridge, then refinance onto the commercial mortgage. Set the term facility's criteria up before the bridge is drawn rather than after.