Buying Premises

1. Why Buy?

Putting down a large deposit may seem expensive, compared with the low start-up costs involved in renting.

But if you believe in the long-term future of your business, there may be good reasons to buy.

1.1 The property is an investment for your business, which may give you a good return.

• Over the long term, property owners have generally achieved excellent returns on their investments.
• Looking ahead, the more standard your premises are, the easier they should be to sell - or let - at a good price. Property investors generally prefer premises laid out in a standard 'institutional' format, with open plan offices and air conditioning.

1.2 The long-term cost of buying premises is generally less than the rent you would pay.

• The overall cost of buying premises is usually higher than renting for the first five years, equal for the second five years, and cheaper from then on.

1.3 Your premises may be the ideal investment for your company pension scheme.

• If you set up a 'small self-administered pension scheme' (SSAS), its funds can be used to buy a commercial property for use by the company, as long as the company pays the SSAS's trustees a commercial rent. This can be a useful and tax-efficient way for shareholding directors to finance their own company. (See Executive pensions).

1.4 You may gain operational flexibility by owning your premises.

• You can design the premises to suit your business. If you are building from scratch, you can specify aspects of the premises in detail.
• You may be able to extend or rebuild parts of the building as your business expands.
• You can let part of the premises to another business.
• If necessary, you can re-mortgage the premises to provide funding.
• You can arrange a 'sale and leaseback' deal to raise finance. You then become the tenant of the company you sell to.

1.5 You may be able to claim capital allowances, to reduce your tax bill.

• If you are buying an industrial building, or if there is any significant plant in the building (such as a boiler), capital allowances may be applicable.