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Tax information for Commercial Property Investors by Arthur Weller

This month’s article gives you some important tax matters to consider if you are thinking of investing in commercial property.

Tax Liability for Commercial Property Owners

If you are investing in commercial property, then you will be liable to pay the following taxes.

  • Income tax (IT)
  • Corporation tax (CT)
  • Capital gains tax (CGT)
  • Inheritance tax (IHT)
  • Stamp duty land tax (SDLT)
  • Value-added tax (VAT)

Three Ways How Commercial Property Investors Can Reduce Their Tax Bill

a) A commercial property let to an unquoted qualifying trading company is eligible for business asset taper relief (BATR), which reduces the chargeable gain on a property by 50% after one year of ownership and by 75% after two years.

From 6 April 2004, this will also apply to a commercial property let to a trading business run by an individual or by a partnership.

b) The government has designated many 'disadvantaged areas' around the country. A purchase of a commercial property in a disadvantaged area is not liable to SDLT. A disadvantaged area can be identified by ringing 0845 603 0135 and giving the post code.

c) Owners of industrial buildings are eligible for an industrial buildings allowance (IBA), which is a capital allowance for the first 25 years of the life of the building.

100% Capital Allowances for Flats Over Shops

If you decide to renovate or convert vacant/under-used space above shops and other commercial property to provide flats for rent, then you can claim up-front tax relief on the entire capital spending.

The capital allowance that is available for such projects is part of a package offered by the government to help the regeneration of the UK.

Qualifying Properties

If you decide to renovate or convert existing buildings, in order to qualify for this relief, the property must satisfy the following criteria:

a) the commercial property must have been built before 1980;

b) the property must not consist of more than five floors in total;

c) the ground floor of the property can originally have been used as either commercial, residential, or mixed use—however, when the work starts, the entire (or majority part) of the ground floor must be classed as commercial use;

d) all floors above the ground floor must either have been unoccupied or used as storage space for at least one year before the renovation or conversion work starts.

If you decide to convert space into new flats, then the following conditions must be satisfied:

a) the conversion must take place within the boundaries of the existing building—extensions to the original building are only allowed if they are required to provide access;

b) each flat must not have more than four rooms—this excludes the kitchen/bathroom and other small areas such as cloakrooms and hallways;

c) each flat must be self-contained and have its own entry/exit access—the point of entry/exit must be separate to that of the ground floor.

About Arthur Weller

Arthur Weller is a Chartered Tax Advisor (CTA) and an integral part of the Property Tax Portal team. He offers a special rate tax advisory service on any aspect of UK taxation, including property taxation, for as little as £87 for a 30 minute telephone tax consultation.

To learn  more about this service click here.