Buying your premises instead of renting: what it actually costs

Most small businesses rent. At some point, usually after a rent review or a landlord's refusal to fix something, the owner does a quick sum on the back of an envelope: we have paid this landlord £120,000 over five years and we own nothing. Why are we not buying?

It is a fair question and the answer is not automatically no. But the comparison people run in their heads — monthly rent versus monthly mortgage — is the wrong comparison, and it flatters ownership badly. The real decision turns on cash you will never see again, flexibility you are giving up, and a tax position most owners never look at.

The deposit is the gate, not the interest rate

Commercial mortgage lenders think in loan-to-value, and for an owner-occupier buying premises the business will trade from, most cap lending at around 70–75% of value. A minority stretch further for a strong covenant, at a higher rate.

So on a £300,000 unit you are finding £75,000 to £90,000 of deposit before anything else. That money leaves the business permanently and is not available for stock, wages, or the quiet month in February.

Then there is stamp duty. On a non-residential freehold purchase in England and Northern Ireland, SDLT is charged in slices: nothing on the first £150,000, 2% on the portion from £150,001 to £250,000, and 5% on everything above £250,000. On a £300,000 purchase that is £2,000 plus £2,500 — £4,500, payable in cash within 14 days of completion.

Add a valuation, a building survey, legal fees on both the purchase and the mortgage, and a lender arrangement fee, and the realistic cash requirement on a £300,000 building is somewhere around £100,000. That is the number to compare against, not the monthly payment.

The monthly comparison, with real figures

Take the £300,000 unit, bought with a £90,000 deposit and a £210,000 commercial mortgage over 20 years. Owner-occupier rates in 2026 have generally been sitting in the mid-five to mid-seven per cent range depending on covenant strength and term; at 6.5% on capital and interest, the monthly payment is about £1,566.

The equivalent unit to rent might be £24,000 a year — £2,000 a month. So on the face of it, buying is £434 a month cheaper and you end up owning a building. That is the sum that convinces people.

Here is what it leaves out. Of that £1,566, roughly £1,138 in year one is interest, which is deductible against profits; the remaining £428 is capital repayment, which is not. Rent is deductible in full. So the tax-adjusted gap is far narrower than £434.

As an owner you also pick up the landlord's jobs: the roof, the boiler, the external repairs, the buildings insurance, and the energy-efficiency obligations. Set aside a repairs provision of even 1% of value a year and that is another £250 a month gone. Business rates you pay either way — worth knowing what a small firm actually pays in business rates before you model any of this.

Rent buys you flexibility and someone else's repair bill. A mortgage buys you an asset and a set of obligations. Neither is free — the mistake is comparing only the half of each that suits the argument.

The tax and pension angle worth an hour of advice

Two things are genuinely favourable and routinely missed.

First, capital allowances. A commercial building's fabric does not qualify, but the integral features inside it — electrical systems, cold water systems, heating and air conditioning, lifts — often do, and a proportion of the purchase price can be claimed. On a £300,000 purchase this is not trivial, and it is a specialist calculation worth paying for once.

Second, buying through a pension. A SSAS or SIPP can hold commercial property, and the structure is neat: the business pays rent to the pension, that rent is a deductible business cost, it lands in the pension free of income tax, and growth in the property's value sits outside capital gains tax. A scheme can also borrow, generally capped at 50% of net scheme assets, which is how a pension with £150,000 in it gets to a £225,000 purchase.

This is genuinely one of the better-value pieces of advice a small company owner can buy, and it needs to be taken before you agree a purchase, not after.

What you are giving up

Flexibility, mostly, and it is worth more than owners expect. A business that doubles in three years and owns its building has a second problem to solve: selling commercial property is slow, and the sale has to work at the same time as the move.

You are also concentrating risk. If the business has a bad two years and the local commercial market softens at the same time — and those things tend to correlate — you have your trading capital and your property equity moving in the same direction.

And the lender will almost certainly want a personal guarantee on top of the security over the building, which is a detail owners often assume the deposit removes. It usually does not.

Who should actually buy

The businesses that do well out of ownership tend to share three things: a genuinely stable trading history, so the payments are affordable through a bad year; premises that are specific to them, where a move is expensive and disruptive; and enough cash that the deposit does not leave the business running on fumes. A business ticking all three is often better off owning.

The ones that regret it are usually growing fast, or short of working capital, or buying because a landlord annoyed them. If the deposit would take your cash reserves below three months of fixed costs, the answer is no this year regardless of how good the building is. Cash flow and profit are not the same thing, and a property purchase is the single fastest way for a profitable business to discover the difference. A refit that took three years to pay back is the smaller version of the same lesson.

One last thing worth checking before you commit either way: a lease has its own stamp duty, charged on the net present value of the rent. Ten years at £24,000 discounts to a net present value of roughly £199,600, so 1% on the £49,600 above the £150,000 threshold — about £496. Small, but it surprises people at completion.

Common questions

How much deposit do I need for a commercial mortgage?

For an owner-occupier buying premises their business will trade from, most lenders cap borrowing at around 70–75% of the property's value, so expect to find 25–30% as a deposit. A handful will go higher for a strong trading covenant, usually at a higher rate. Budget beyond the deposit too: stamp duty is payable in cash within 14 days of completion, and valuation, survey, legal fees on both the purchase and the mortgage, and a lender arrangement fee all land at the same time. On a £300,000 unit the realistic total cash requirement is around £100,000 rather than the £90,000 deposit alone.

Do I pay stamp duty when I buy business premises?

Yes, if the price is above £150,000. SDLT on non-residential freehold purchases in England and Northern Ireland is charged in slices: nothing on the first £150,000, 2% on the portion from £150,001 to £250,000, and 5% on the portion above £250,000. A £300,000 purchase therefore costs £4,500. New leases are charged separately on the net present value of the rent — nothing up to £150,000, 1% between £150,001 and £5 million — so a ten-year lease at £24,000 a year produces a bill of roughly £496. Scotland and Wales operate their own equivalent taxes at different rates.

Can I buy my business premises through my pension?

Yes. A SSAS or a SIPP can hold commercial property, and the structure is efficient: your company pays rent to the pension, the rent is deductible against business profits, it arrives in the pension free of income tax, and any growth in the property's value is outside capital gains tax. The scheme can borrow to help fund the purchase, generally limited to 50% of the scheme's net assets, so a pension holding £150,000 can support a purchase of around £225,000. It has to be genuinely commercial property, and the arrangement needs proper advice before you agree the purchase rather than after.

Is it cheaper to rent or buy business premises?

Comparing monthly rent with a monthly mortgage payment overstates the case for buying. Rent is fully deductible against profits; only the interest element of a mortgage payment is, and in the early years capital repayment is a real cash cost with no tax relief. As an owner you also take on repairs, buildings insurance and energy-efficiency obligations that a tenant does not, which on a £300,000 building can easily be another £250 a month. Buying tends to win for stable businesses with premises-specific needs and surplus cash; renting wins for anyone growing fast or short of working capital.