Top 6 primary tax benefits of owning commercial property

According to HMRC, any property that does not allow residence to anyone is labelled as commercial property. Shops and offices are the most common type of commercial properties in the UK.

Here are the answers to some questions that may help you in making your decision of investing in a commercial property. Lawrence Grant's specialised accountants can help you calculate and apply for reliefs and benefits that you are eligible for. 

What are the advantages of buying a commercial property?

If you opt for buying a commercial property in the UK, you will enjoy the following benefits: 

• The freedom to utilise or alter the property according to the demands of the business. 
• More flexibility to manage the building. 
• Easily sublet a part of the property to another business to add another income stream. 
• Generate a higher profit by selling the property when it gains value. However, the owner may be liable to pay Capital Gains Tax under certain conditions. 

What are the 6 tax benefits commercial property owners enjoy?

Since commercial properties require a considerably higher amount of investment capital, the UK Government, through HMRC, has given tax benefits to encourage those investors who invest in commercial properties in the UK. Here are 6 of these benefits: 

1. Capital Gains
   Commercial property owners can benefit from 'Business Asset Disposal Relief,' which allows you to pay less Capital Gains Tax on property or assets owned and used by your business. According to the Business Asset Disposal Relief, you will be required to pay only 10% CGT on your qualifying assets. However, you need to own and use the asset in your business for at least two years before becoming eligible for this tax relief. Before 6th April 2020, Business Asset Disposal Relief was known as Entrepreneurs' Relief.

2. Capital Allowance
   Commercial property owners also enjoy the advantage of capital allowance. As a business, you can claim capital expenses that are necessary to increase your working capabilities. 
3. Stamp Duty Land Tax
   The Stamp Duty Land Tax on commercial properties is considerably lower than what you can pay when purchasing a residential property. Supposing that you are buying land worth £145,000, if it is residential, then you will have to pay 1% SDTL. However, in the case of commercial property, you are not liable to pay any taxes. 
4. Flat Conversions
   Suppose the commercial property owner decides to convert the upper floors to residential flats to accommodate staff. In that case, the owner can make VAT savings because the VAT on direct labour and material costs will decrease to a mere 5% from 20%. 
5. VAT Refunds
   As a commercial property owner, you have the option to charge VAT on the rental payments you get from your property. If you opt to charge VAT, you can recover VAT on specific costs and expenses such as renovating and redecorating costs. Getting VAT refunds can assist the owner in maintaining the property. If the tenant is unable to pay VAT, you can negotiate a higher rent to cover your loss of VAT recovery.
6. Self-Invested Personal Pension Scheme
   Under certain conditions, people can make investments in commercial property through the Self-Invested Personal Pension Scheme. Opting for this option can bring numerous advantages to people as SIPP has tax free incomes and gains. Therefore, the person can avail tax relief by making payments into SIPP to fund deposits for a new commercial property. 

Final Note

The tax on commercial property is lower than residential properties in the UK because the government has introduced business-friendly policies, but still investors are required to pay taxes. If you want to ensure that you pay the correct amount of tax by the time it is due, Lawrence Grant can assist you by providing commercial property tax advisory services.