From cinema to social club to luxury flats
This property is located in New England, Peterborough and is on the suburb of a thriving local shopping area. It was built in the late 1800s and was once a cinema in its heydays. More recently it was a social club but due to the declining nature of such recreational pastimes, the club dwindled in membership and was sold to us.
We applied for planning for six one-bedroom flats and six two-bedroom flats which was granted by the council.
As you can see the staircase is a unique feature. It has character and it is beautifully designed. We will commission a specialist to improve the staircase and landing so that we retain the character and presence of this feature.
As you know I always like sharing with you how you can make a tax saving. So, I would like to share one with you now
New England is a commercial conversion which we are turning into residential. If you are buying a commercial building like this or any commercial building if it has an ‘option to tax’, which in simple terms means you would have to pay VAT on purchasing the building. there are two things you should consider.
The first one you want to look at completing a VAT 1614D. Give this to the vendor and if they accept it means you do not have to pay VAT on the purchase, which is good, because then you don’t have to fund that additional VAT, no arrangement fees, no interest, no getting money back from HMRC which can be time consuming.
However, if you can’t do a VAT 1614D but the previous owner has a tenant in there because let’s say the tenants vacating 6, 12 months’ time, that can happen, so then you could do a transfer of going concern. Meaning you do not have to pay VAT on the purchase, but you will have to register for VAT to take over the transfer of going concern and then charge VAT on the rent to the tenant.
This is the first floor. As you can see we have started work on it.
The ceiling feature is a special design. It also brings out the character of the building just like the staircase.
We will be incorporating this into the development.
On your checklist when purchasing any property for development must be to find out if there is any Asbestos or other land contamination issues. If you do find asbestos there is legislation in how to handle and dispose of it safely.
In New England there was a significant amount of asbestos in the building which was unknown to us at the time of purchase. It costs over £25,000 to clear including all related costs.
Supporting homeless people & planning
With any development the Council must be involved in the proposed plans.
Something we were not expecting was that at the point we were going through the planning stage with the Council we were approached by a charity who work with homeless people. Whilst they were not looking to pay any rent they asked if they could use the property.
As they are a charity, they get 80% business rate relief. They were then able to go back to the council and the council gave them the additional 20% discretionary rate.
This saved us the best part of around £12,000 as we did not have to pay the business rates while going through the planning stage. It also enabled us not to pay for security for the premises, so another saving. Mostly importantly, it helped a charity provide vital support to the local community. That was the main reason for doing it. The business rate savings were an added benefit and not the primary driver.
Initially we set the business up as a partnership then moved into a limited company. Why?
This meant if we sell the properties, we will pay 19% corporation tax on the profits, whereas keeping the properties, as we are higher rate tax payers, we would have paid 40% or 45% on the profit. This way, we are only paying 19% corporation tax on the new gain.
We have decided to keep the property units and rent them out as serviced accommodation. Buying a commercial property we were also able to undertake a capital allowance review for further savings. Capital allowances are items at such areas as fixtures and fittings e.g. cameras, air con, etc.
We managed to obtain just over £126,000 worth of capital allowances.
As we are changing the property from commercial to residential, we are increasing the number of dwellings. This means we will pay 5% VAT on the refurb as opposed to 20%.
We are contracting out the entire job including materials. So, we will pay 5% on the labour and the materials. The overall tax savings came to around £115,000.
This building has a lot of windows. So, what do you do? Replace all? Or put in new where necessary?
We decided to replace all the windows. If you are not careful you repair some and add some new ones and the end result does not look good.
For us we want to ensure that the exterior presents the image of a quality property which attracts people who will rent the property.
In my experience I see this as an investment as opposed to a cost.