7 Useful Considerations When Selling an Inherited Commercial Property

For most beneficiaries selling an inherited commercial property can be a viable option because it allows them to get on the property ladder or fulfil one of life’s many goals.  Perhaps this is true legacy of how your loved one would have wanted you to spend your inheritance?  Inheriting a commercial property can either be a real gift or present you with several financial and strategic challenges if you have little experience as a commercial landlord.

This is where Property Saviour can help you.  We are assisting Executors daily with their probate properties both residential and commercial properties.  We can make you a cash offer, a quick completion and pay £1,500 towards your legal fees.  This could save you thousands of pounds in term of business rates, insurance, dilapidation, maintenance, security, and insurance costs.

If you have just had a loved one pass away, do you know what to do next?

Selling a commercial property is a big decision and there may be an added pressure from beneficiaries as they may wish to use their inheritance to buy a bigger property, carry out a renovation or pay off their outstanding mortgage.  This article will explore potential challenges that sellers face when selling an inherited commercial property and offer you practical solutions.

1. Commercial property valuation isn’t a proper valuation unless it a RICS valuation

It is so easy to get a commercial estate agent to give you a valuation.  It might surprise you to learn that this valuation is just the opinion of your estate agent.  Using an out of area estate agent or an agent who does not specialise in commercial properties can be a costly mistake.

Estate agents in the UK do not require any qualifications or licence to practice unlike solicitors or qualified RICS surveyors so their opinion is just that – an opinion.  They may give you a higher valuation figure to win your instruction.  This is a sharp and unethical practice.  Your property will be just a number on someone’s performance dashboard under ‘won instructions this month’.

Having instructed your enthusiastic agent, a few months have gone, and you’ve had very little feedback.  Probate bills, including a very large business rate bill, has arrived and you want to get an update on the sale of your commercial property.  You call your commercial estate agent and leave a message with their receptionist.

A couple of days later, he/she calls you back.  You are relieved and hoping for some good news.  He/she tells you that there has been very little interest in your commercial property, and they recommend that you reduce your ask price. 

You feel frustrated and angry but what can you do? You reluctantly reduce the price, and now your agent knows that if he/she does not get any more interest, he/she can chip away at your asking price, again and again until it eventually sells.  This is a technique in property industry called ‘chipping away at the price’ and it is a common practice within estate agency industry.

Executor often end up ‘over-valuing’ their commercial property for inheritance tax purposes and therefore, could be liable for an additional inheritance tax.

2. Business rates – the Achilles heel for business owners?

Punitive business rates can put off potential start-ups or fail an established business.  Business rates can destroy cashflow particularly if takings are down due to seasonal variations or changes in consumer behaviour – for example ordering items online rather than buying at a local High Street retailer.

As well as charging commercial property owners or their tenants with business rates, the councils are busy charging shoppers for parking in town centres.  Shoppers would rather visit a shopping centre with abundant free parking.  This is another reason for the demise of our High Street – and why you see so many empty shops.

In our opinion, the word council should be synonymous with inefficient, lazy, and bureaucratic in the English Dictionary.  When it comes to business rates, they are ultra-fast to send you a large, and often an unexpected bill.  Expect zero sympathy.

It can take time to wind up probate estate.  Your council is more than likely to demand payment for business rates rather than giving you a bit of breathing space to sell or rent the inherited commercial property.  Should you fail to pay business rates on time, they can start court proceedings against you or the deceased.  You might be wondering why you have to business rates for an empty property, and we couldn’t agree more.

What will have council done for your empty commercial property in return?  Not a thing.  Your council won’t protect your empty property from squatters or vandalism.  If you end up with unwanted graffiti or squatters moving in, you could end up spending thousands of pounds in legal fees to evict them. 

Let’s say that squatters have left a rude graffiti mark at the front of your commercial property that council deems to be offensive, they will force you to have it remove or do it at their expense and expect you to pay for it.

Selling an inherited commercial property requires careful consideration by Executor & beneficiaries.

3. Your empty commercial property is worth less compared to a tenant property

If you have a fully let commercial property, it will be generating a monthly income.  The tenant will be liable for business rates and internal repair costs.  It is considered a cashflow asset.

Naturally, empty commercial properties are considered a liability due to their considerable costs in unfair business rates, dilapidation, risk of theft, squatters moving in, vandalism and empty property insurance.

The value of an empty property could be as much as 50% less than a fully let commercially viable investment.

4. Change in demand for your commercial property

On paper inheriting a commercial property can be truly a gift that can keep on giving especially if it is an income producing asset.  Unexpected changes over a period can truly devalue the appeal of your commercial property.  Let’s say that you own a shop in row of boutique shops on the High Street.  A once desirable High Street now has several betting, vaping, and barber shops, it does not have the vibe as it once did.  This can make it difficult for you to let or sell your commercial property.

Equally if you own an office building or a block of apartments and next door a new scrap yard or recycling plant opens, the noise and the smell can be unpleasant and affect its appeal.

Commercial properties require careful management, and it takes experience to notice local property market demographics change.  Is now the time to sell?

5. Putting beneficiaries’ interest first

Inheritance disputes can lead to disagreements and a stressful situation amongst beneficiaries.  It is up to beneficiaries to decide whether they wish to rent their inherited commercial property or sell it.

6. Income tax on inherited commercial property

A fully let commercial property will generate rental income from business tenants and you would have to pay tax on any profits you make.  The amount you will pay will depend on your personal circumstances and whether or not you are a high rate tax payer.  UK Government website gives you a useful example of rental income tax.

7. Inheritance tax on commercial property

If the total value of deceased’s estate exceeds £325,000 then beneficiaries could be liable to paying 40% inheritance tax.

The good news is that you may qualify for Business Property Relief.  If you transfer business assets, it can reduce your inheritance tax liability by 50% or 100%.  With commercial property, relief is only available if the building will continue to operate as a business from the premises. If you have inherited a commercial property where your primary goal is to profit from rental income than BPR will not be available.

Inheritance tax is a complex subject as it largely depends on your personal circumstances and how estate planning structure was set-up.  It is always best to speak to your Accountant.

Depending on when a commercial property was inherited, there maybe a capital gains tax to pay.

Should you sell or rent your inherited commercial property?

Commercial properties fall into one of these categories:

  • Retail property
  • Office building
  • Industrial unit.

Owning one of these in a good location can be incredibly rewarding if you have the experience of managing a commercial property and understanding when to exit if market conditions deteriorate.  Just like any investment, you must take care of it and that means regular inspections to ensure that building structurally sound, basic fire safety regulations are being met, electrics are compliant, gas appliances are safe and serviced regularly.  It takes a lot of work and a landlord you are responsible legally.

Beneficiaries often prefer to sell their commercial property for cash and using their inheritance pot to make a fresh start.  If you would like a fair cash offer, please get in touch with us.  There are no estate agency fees and no delays.  We aim to complete all commercial property purchases within 3-4 weeks.  We are legitimate commercial property buyers that you can trust – see our genuine reviews.

The value of property is determined at the date of death and if property has risen in value between the death and its resale then additional Capital Gains Tax will be payable.

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