Inheriting £200k: Pay off home mortgage or attempt to buy our “immovable” commercial business unit?
My wife and I (mid-30s) run a Limited Company from a commercial unit in Manston, Kent. We are set to inherit £200k via a Deed of Variance and we are trying to decide between personal security and business freedom.
The Situation:
• Home: We have £135k left on our residential mortgage. Mortgage finishes March 2053. 4.57% Fixed term finishes in September this year.
• Business: We rent a unit in Manston Business park. We’ve spent a fair bit building inside the unit. It is essentially "immovable"—moving the business elsewhere would mean losing the entire build-out. It’s not an easy or practical structure to dismantle and move into a new unit. We would essentially need to build again should we continue the same business model in our own or rented commercial unit elsewhere.
• The Landlord: No issues or missed rent payments. We pay the insurance and site fees, and we are responsible for all building repairs/upkeep, rent reviews happen every 2 years (rent has risen every time)
• The Location: We are right next to Manston Airport, which is set to reopen for air freight in the coming years, likely bumping up local commercial property values and rent costs. No doubt once someone starts paying hugely inflated rent in other units on our business park a precedent will be set and our business will not be able to sustain that kind of pressure should it happens to us.
The Options:
• Option A: Attempt to Buy the Business Unit personally (not through our businesses Limited Company) from our landlords ASAP. We estimate the unit is worth £230k-£250k given our improvements internally (looking to have a commercial estate agent give us a fair market value soon). We would attempt to buy the freehold in our names and allow the business to occupy it for £0 rent (or very low). This would stop the monthly payments to the landlord, which we could then make greater use of. We already pay into standard Retail investor SIPPs from our limited company profits.
• Option B: Pay off the Home Mortgage. We clear the house (£135k) and invest the remainder. We’d be personally debt-free, but we’d still be under the landlord's thumb at the business which ultimately pays our wage, and losing the business through something like rent doubling or tripling would be a very bitter pill.
• Option C: Buy a New Investment Unit. There are new and existing builds on the same estate for £190k+. We could buy one as an investment to rent out and use the money from the unit to help our own personal finances in paying off our mortgage, but this doesn't solve the issue of our own studio being in a rented space.
Our Thinking:
We’ve looked into attempting a purchase of the commercial unit we are currently in through our SIPP, but we’ve decided against it for now. Aside from the fact we don’t have enough money in our SIPP’s, and our backdated annual thresholds not allowing the full £200000 to be massaged into them (I believe), We ideally want the cash flow to firstly secure the businesses future over the long term, but also improve our quality of life via dividends, rather than locking the money away until we’re 60+ (I’m expecting the pension age to rise again by the time we get close to it)
I’m sure it’s a long shot but we both think making a cash offer over the market value of the commercial unit to our landlord is the best chance we have of getting them to even consider our proposal. Previous attempts over the years to try and purchase the building from them, albeit with a commercial mortgage, have been batted away for a myriad of reasons.
Just wanted a sanity check and see if anyone who has attempted to do this before has had any success, or thoughts on an alternative solution that has worked for you.