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Commercial Property Tax

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Commercial Property Tax Clinic – Factsheet

Interest Relievable – (not for residential buy to let)

Relief on any interest element on lending is fully relievable for commercial property.

Restrictions are in place for residential buy to let properties.

Consider the structure of property portfolios with potential diversification into commercial property for historic buy to let landlords.

Enhanced Capital Allowances

Enhanced Capital Allowances were introduced by HMRC to encourage more investment into commercial properties from individuals and businesses. Capital Allowances are available for all individuals and businesses that are UK taxpayers.

Whilst the shell of the property itself does not attract tax relief immediately (the cost is allowed as a deduction for capital gains upon disposal), the items embedded within the property do, and can hold thousands of pounds in tax refunds. The relief can be as much as 40% of the cost of a property and higher for alterations, extensions and refurbishment.

Within any commercial building these embedded items may not previously have been claimed. Unclaimed items are identified by industry experts and are addressed as a separate/additional claim on your tax return (It is not expensed through the profit and loss account). Claims can be made on:

  • Plant and Machinery: Any items you keep to use in your business (i.e includes fixtures such as bathroom suites and fitted kitchens as well as the cost of installation and demolition, etc.)
  • Integral Features: Parts of a building considered integral (i.e Lifts, air conditioning/cooling systems, water/electrical systems etc.)

Up to 90 percent of businesses that acquired a building will not have undertaken this claim.

SIPP/SSAS Pension Planning

A SIPP/SSAS in the majority of cases is the most tax efficient way to purchase a commercial property.

10 advantages of commercial property in a SIPP or SSAS

No income tax on rents received.

No Capital Gains Tax on the eventual sale of the property.

It falls outside of your estate for inheritance tax purposes.

It’s not accessible to creditors in the event of personal or business bankruptcy.

Releases capital back into the business to help with cash flow.

Part or all of it can be sold at any time to SIPP, SSAS or non-SIPP or non-SSAS investors.

Can be purchased in conjunction with other SIPP investors, such as work colleagues (a SSAS is more cost effective for this as there is just one pension scheme for your business rather than a collection of individual SIPPs for each of you)

The SIPP or SSAS can borrow up to 50 per cent of its value to acquire the commercial property.

There is no individual or corporate liability on SIPP or SSAS loans.

On the SIPP or SSAS holder’s death, it could be transferred to a beneficiary as a ‘death benefit’

SDLT Savings

Although commercial property may be more risky from an investors point of view, if successful, non-residential rates of SDLT are much more favourable than residential rates due to the avoidance of the 3% SDLT surcharge for additional residential properties.

It is important to plan the timing and values attributed to any property transaction to ensure SDLT is minimised.

A review should be undertaken to identify where making a gift of a property could reduce SDLT. Transactions between spouses and civil partners are on a no gain (or loss) basis.

(SDLT rates shown in Appendix 1)

CGT Planning

There are several basic ways in which a liability to CGT can be reduced; planning of all available annual exemptions (particularly spouses and civil partners), maximising enhancement expenditure, entrepreneurs’ relief (associated disposals), loss relief on other assets.

Plan the acquisition/disposal of commercial property to minimise CGT.

Ensure maximum use of indexation allowance (up to 31 December 2017).

Ensure maximum use of all reliefs available for holding/rolling over any gains.

Plan to ensure that capital gains crystallise in the most tax efficient vehicle and tax period.

Company -v- Private ownership of commercial property

Several factors to take into account for the ownership of commercial property;

Planning of the purchase/transfer of commercial property to ensure ownership is in most tax efficient vehicle based on length of proposed ownership, reliefs available and other personal income requirements.

Ability to utilise personal annual pension allowances to maximise the tax relief available when funding the purchase through the use of Limited Companies and SIPP’s. There is also the ability of a 3 year back dating of unused allowances available.

Consider the use of family annual capital gains tax allowances and timing of disposals.

There is no ‘clear cut’ answer to the question whether residential property should be owned personally or by the company! Every case should be considered separately, based on individual circumstances.

Appendix 1

Buy-to-let and second home Stamp Duty tax bands


Standard rate

Buy-to-let/second home rate (April 2016)

Up to £125,000



£125,001 - £250,000



£250,001 - £925,000



£925,001 - £1.5m



over £1.5m



Purchase price (non-residential or mixed use)

SDLT rate paid within each tax band

Up to £150,000


Between £150,001 and £250,000


Over £250,000


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