Commercial Property

1. Commercial property has several advantages over residential as an investment choice.
2. Mortgage Interest relief. Section 24 restrictions on mortgage relief only apply to residential property. For Commercial property, 100% of the interest costs is allowable as an expense for tax purposes.
3. Capital Allowances. Tax relief is available on most capital expenditure on Commercial property. New for 2023 is Full Expensing which offers 100% relief for qualifying assets (companies only). Sole Traders still have access to the Annual Investment Allowance (AIA) which gives relief up to £1mn. The rules on ‘Fixtures’ and ‘Integral Features’ are complex and it’s easy to miss out on valuable savings without an expert to guide you.
4. Pension Funds (SIPP and SSAS). If you have funds in a Self Invested Personal Pension (SIPP) or Small Self Administered Scheme (SASS) then you can normally invest in Commercial property. This is particularly useful for business owners looking for premises. The business can pay rental income directly to the pension scheme with no tax on the profits.
5. VAT Treatment.  Commercial property comes with an ‘option to tax’. The landlord can choose on a property by property basis whether the rent should be VAT-able. If VAT rated, then you will charge VAT on the rent, but also recover VAT on your expenses. This is a good option if your tenants are likely to be VAT registered themselves; less so if they’re not!
6. Structures and Buildings Allowance (SBA). An allowance of 3% per annum is available on the cost of construction, conversion and renovation costs of Commercial property. Whilst the allowance is useful for cashflow, it does get charged to CGT on disposal.
7. Lease Premiums. Leases and Lease Premiums can be complex. The accounting treatment in the books of the landlord and the tenant needs to be carefully considered for both Income/Corporation tax as well as potential LTT obligations.

The tax treatment of Commercial property in North Wales can be complex. Mistakes can lead to penalties or the loss of valuable reliefs. Make sure you speak to an accountant who specialises in this area.