Commercial property refers to as property that’s used to generate profit, either from rental income or capital gain. If you’re the owner of a commercial building and feel like it’s time to part ways with it and start new, there are a number of things you need to consider before you sell. At the top of this list will be how much tax you’re required to pay when the property is sold.
Ownership of commercial property
First, let’s take a quick look at the tax implications involved in owning and investing in commercial property in the UK. Inheritance Tax (IHT) is applicable to all assets which are directly owned. This includes commercial property, no matter where the owner of the building is living – if outside the UK.
Inheritance tax is payable upon the death of a property owner at a rate of 40% of assets held at that point. This tax can also be added to any gifts made within seven years before death, although the rate will be smaller for these.
To reduce this tax bill, financial advisers and accountants will often recommend that their clients move their commercial property assets into a trust. By doing so the IHT will be reduced to 20%, but the assets will be subject to a 6% charge every ten years. Also, there is a pro-rated 6% IHT charge on any distributions from that trust.
As long as the settler of the trust keeps an interest in it, the commercial property will stay in their estate from an inheritance tax point of view. Our experienced commercial property solicitors will be able to provide general advice to help you understand your tax liabilities.
Capital Gains Tax on commercial property
In accordance with the UK government and tax legalities, landlords will have to pay Capital Gains Tax (CGT) on their property if they make a profit (‘gain’) when selling or getting rid of a building that isn’t their home. For example:
- Buy-to-let properties
- Business premises
- Inherited property
Whether you need to pay the tax and how much you will have to pay on your commercial lease/property comes down to multiple factors. Below are just a few situations that might be relatable to you and your property.
- Commercial building owners don’t normally have to pay capital gains tax on gifts to a charity, civil partner, husband, or wife.
- Commercial property tax relief might be available to you if the building is a business asset.
- If a dependent relative lived in the property, the seller might be exempt from paying capital gains tax on their profit.
How much profit from selling your property will you need to pay in capital gains tax?
Capital gains tax is paid on the profit you earn when you sell something of high value. This means you will only have to pay tax on the ‘gain’ you have made, not the entire amount you receive from the sale. For example, if you purchased a commercial property for £250,000 and sold it further down the line for £350,000, you will only be charged capital gains tax on the £100,000 profit you have made.
- Individuals that are UK residents are taxed at either 10% or 20% on their gains, depending on what tax threshold they’re in.
- Companies that sell or dispose of their commercial building will have to pay Corporation Tax on their profits (17%).
- Non-UK residents who are selling commercial property in the UK have previously not been subject to paying this type of tax. However, from April 2019, all sales, or disposals of UK property by non-residents will now face capital gains tax.
If you’re interested in buying or selling commercial property and are looking for expert commercial conveyancing solicitors in Washington, or commercial conveyancing solicitors in Tyne & Wear, contact our friendly team at Toomey Legal today.