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If you are thinking of investing in commercial property, there are several tax implications that you need to consider:

Stamp Duty Land Tax

When a freehold commercial property is purchased, Stamp Duty Land Tax (“SDLT”) is charged dependent on the value of the property, as detailed below:

Property value                                                                                  SDLT rate

Up to £150,000                                                                                          Zero

 The next £100,000 (i.e. £150,000 to £250,000)                                    2%

The remaining amount (i.e. proportion above £250,000)                    5%

Capital allowances

The purchase of a property is not a deductible expense for tax purposes, and will therefore not reduce a company’s taxable profit. However, within a building there are usually many integral fixtures and fittings that would qualify for capital allowances, which are tax allowable.

The value of any integral fixtures need to be agreed at the point of purchase or the allowances will be lost forever. Additionally, the previous owner must have already made a claim for these fixtures.

It is advisable that during any negotiations, the purchaser should check whether the seller has claimed all of the allowances it was permitted to, or whether any action can be taken to preserve the allowances.

VAT

Generally, the sale and purchase of commercial land and buildings are exempt-rated supplies for VAT purposes. However, there are many exceptions to this rule and we recommend that expert advice is sought before the purchase is completed.

An example of this is when a new or partly completed freehold commercial property is sold. This is a standard rated supply, so 20% VAT will be charged on top of the cost price of the property. All freehold sales that take place in the three-year period following the date of the property’s completion will also be subject to standard rate VAT.

The commercial property could form part of a transfer of a business as a going concern. Here the sale will be outside the scope of VAT and no VAT will be charged. We’ll cover this in more detail next month.

Please call Michael Burgess on 01782 279615 if you have any questions.


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