Owning commercial property in the UK comes with several tax implications, which include both taxes that are due at the time of acquisition and ongoing tax liabilities. Here is an overview of the main taxes involved.

Please note that this guide has been produced for information purposes only.

Stamp Duty Land Tax (SDLT)

• When Applicable: Payable when you purchase a commercial property.
• Rates: SDLT rates for non-residential property or mixed use land or property (as of the latest update) are:
  • Up to £150,000: 0%
  • £150,001 to £250,000: 2%
  • Over £250,000: 5%

Land and Buildings Transaction Tax (LBTT) in Scotland

• When Applicable: Similar to SDLT, but specific to Scotland.
• Rates: Different bands and rates apply, and they are reviewed periodically.

Business Rates

• When Applicable: Payable by the occupier of commercial property or part of a building that is used for non-domestic purposes, whether as owner or tenant.
• Calculation: Based on the property’s “rateable value,” which is an assessment of its open market rental value.
• Reliefs: Small Business Rate Relief, rural rate relief, and other specific reliefs may apply.

 

In Scotland business rates are known as non-domestic rates and information and advice can be found here on the Scottish Government website. And information on the billing and collection of rates in Northern Ireland can be found here.

Value Added Tax (VAT)

• When Applicable: Owners of commercial property have the option to charge VAT at the standard rate (which is currently 20%) when they sell or lease their property. The standard rate is also applied to commercial property transactions where the property is new (less than 3 years old).
• Opting to Tax: Allows the owner to reclaim VAT on costs associated with the property but requires charging VAT on the sale or lease.
• Exceptions: Some commercial property transactions are VAT-exempt, particularly those involving leases of more than 21 years.

Income Tax/Corporation Tax

• Rental Income: Rental income from commercial property is subject to income tax (for individuals) or corporation tax (for companies).
• Deductible Expenses: Maintenance costs, loan interest, and management fees can often be deducted from rental income to reduce tax liability.

Capital Gains Tax (CGT)

• When Applicable: Payable on the profit made from selling a commercial property. This includes buy-to-let property, land and inherited property.
• Rates: For individuals, the rates are 10% (basic rate) and 20% (higher rate). For companies, the gain is subject to corporation tax.
• Reliefs: Business Asset Disposal Relief (known as Entrepreneurs’ Relief before 2020) might reduce the CGT liability for qualifying businesses.

6. Inheritance Tax (IHT)

• When Applicable: Commercial property forms part of the estate and may be subject to IHT upon death as it is applicable to all assets which are directly owned.
• Reliefs: Business Property Relief (BPR) may apply, potentially reducing the taxable value of the property for IHT purposes.

 

Practical Considerations

Professional Advice: It is crucial to seek advice from a tax professional or accountant experienced in commercial property to navigate these taxes efficiently.

Record Keeping: Maintain comprehensive records of all expenses, income, and any tax elections or reliefs claimed.

Planning: Effective tax planning can help mitigate tax liabilities, such as considering the timing of transactions or the use of tax reliefs and allowances.

If they are any commercial property topics you would like us to cover on our blog let us know in the comments below.

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