Taxes commercial property owners need to pay

20 May 2019

Before buying a commercial property, it’s important to be aware of the different types of tax you will need to pay. From Stamp Duty Land Tax to Corporation Tax, there are many forms of tax which a commercial property owner will need to bear in mind when purchasing property.

In this month’s blog post, Propsellers will take you through the different types of taxes you need to be aware of.

Stamp Duty Land Tax (SDLT)

If you purchase property or land in England and Northern Ireland, you will need to pay Stamp Duty Land Tax. The current threshold is £150,000 for non-residential land and properties.

Non-residential property is classed as:

  • Shops, offices, or other commercial property
  • Agricultural land
  • Forests
  • A single transaction consisting of six or more residential properties
  • Any land or property not used as a residence

The amount you pay depends on the type of property you purchase and the property’s value. For example, for freehold sales and transfers, properties valued between £150,001 and £250,000 would pay 2 per cent SDLT. For new leasehold sales and transfers.

Value added tax (VAT)

According to Mercer & Hole, the sale or lease of a property is “generally exempt from VAT”. Property owners can choose to charge VAT on properties they are selling or leasing — this extends to charging VAT on all supplies linked to that property. This can be an advantageous decision, such as if the landlord has to refurbish the property, as they can then claim back the VAT charged to them.
With the sale of new commercial property, this sale is liable for VAT. A property is defined as “new” if it is less than three years old.

Income tax

Of course, if you decide to rent your commercial property, the income you gain will be subject to rental income tax. This tax is deduced from any profit you make on renting out the property. It is important to note that your income is not just defined as the rent you receive from a tenant — it also includes additional payments you receive from tenants for services you provide as their landlord, such as for utility bills, repairs, or cleaning.

The amount of tax you pay depends on your whole income, i.e. the income from renting this property plus any other incomes you may have. Your total income determines how much tax you pay. This is paid each tax year (6th April to 5th April the following year).

Corporation tax

If you are making a profit from doing business as a limited company, a club, co-operative, or as a foreign company with a UK branch, you must pay Corporation Tax. Your business must be registered or Corporation Tax when you start doing business; it will not come as a bill for you to pay.
At the end of your accounting period, you will be required to file your company tax return.

Sources

https://www.gov.uk/stamp-duty-land-tax

https://www.devono.com/vat-on-commercial-property/

https://www.gov.uk/corporation-tax

https://www.which.co.uk/money/tax/income-tax/tax-on-property-and-rental-income/how-rental-income-is-taxed-ayc3w9f6kxgz#headline_3

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