In recent years, a significant number of UK tax changes have focused on residential property rather than commercial property. With lower tax rates, fewer restrictions and flexibility in the investment vehicle, commercial property investment in the North West is experiencing a significant period of growth. However, care should be taken when investing in commercial property in order to effectively claim reliefs that are due. At UHY Hacker Young, we have extensive experience in advising on commercial property.
Some of the key issues affecting commercial property investors are:
Stamp Duty Land Tax (SDLT) on the acquisition of commercial property
SDLT ranges from 2% to 5% for the acquisition of commercial property. It is the purchaser that pays the tax. In Scotland and Wales, similar taxes to SDLT are instead due.
Where a company owns the property, and the shares are acquired instead of the property being purchased directly, stamp duty at 0.5% will instead be due.
VAT on the acquisition of commercial property
There are many VAT issues to be considered when property is developed or purchased (see our VAT page for more details). At UHY in Manchester, we are able to provide specialist VAT advice to those businesses in the property sector.
For those investing in commercial property, capital allowances may be available to provide tax relief for fixtures and fittings within properties. For those purchasing or selling property, detailed attention should be given to the capital allowances position to ensure that the purchaser is entitled to claim capital allowances, and also that the seller does not suffer balancing charges on the disposal of the fixtures within the property. Further details can be found at our capital allowances page.
Entrepreneurs’ relief and commercial property
Where an individual disposes of shares in a company, if there is a profit on the disposal of the shares, he will usually be subject to capital gains tax. A favourable tax rate of 10% (entrepreneurs’ relief) is available where certain conditions are met. One such condition is that the company whose shares are being sold must be ‘trading’ for tax purposes. Where the company holds substantial investment property, this will not be the case. It may be appropriate to split the trading activities from the property ownership in this case to ensure that the 10% rate is available on a future sale of the company. We have significant experience in advising clients as to the ownership structure of their businesses, particularly in relation to property and can help you determine the best structure to suit your circumstances.
Inheritance Tax and commercial property
Shares held in unquoted trading companies will generally attract 100% business property relief (BPR) for Inheritance Tax (IHT) purposes. This means that where these companies are gifted, either during the lifetime of the donor, or at death, IHT should not be chargeable.
However, in order for BPR to be available, the company must be wholly or mainly trading in nature. Where significant property investments are held by the company, this may prevent BPR from being available. As for entrepreneurs’ relief, it may be advisable to separate the trade of the company from the property investment in order to ensure that IHT is not suffered on a gift or bequest of the company shares. We are able to advise on suitable ownership structures to help ensure that BPR is available.
Commercial property investment and pensions
Unlike residential property, commercial property can be held directly as an investment by a self-invested personal pension (SIPP). For those who own their own business, the premises from which the business trades could owned by a SIPP, with rental payments being made directly to the pension plan. For those wishing to undertake pension planning please visit our financial planning page.