Commercial property tax: VAT, SDLT, allowances and how to hold the building

Supplies of land and buildings are normally exempt from VAT, which means you cannot recover VAT on related costs. If you opt to tax, your rents and any sale become standard-rated, so you charge VAT, and you can recover the VAT you incur. It is a choice made by the person with an interest in the property, not an automatic status.

You decide to opt, record the decision, and normally tell HMRC in writing within 30 days, using form VAT1614A. HMRC needs to give permission if you made exempt supplies of the property in the previous 10 years, unless an automatic permission applies. It cannot apply to buildings designed or adapted as dwellings. Late notifications may be accepted with evidence.

There is a six-month cooling-off period after the option takes effect, during which you can revoke if conditions are met. After that you can revoke only after 20 years, again if conditions are met, or with HMRC's permission. An option also lapses if you hold no interest in the property for six continuous years. Plan carefully before opting.

Tenants that cannot recover VAT, such as banks, insurers, some medical practices and charities, pay VAT as an extra cost, which can make the property harder to let or reduce the rent you can charge. Conversely, a fully VAT-registered tenant usually recovers it. We help you weigh the recovered input VAT against the effect on your tenant mix.

Only if the seller has opted to tax or the building is new. Buying a building where an option applies adds 20% VAT to the price, which you can usually recover if you are VAT registered and use the building for taxable supplies, for example by opting to tax it yourself. The sale of a let building as a going concern can sometimes be outside the scope of VAT. Always check before exchange.

Freehold purchases of non-residential or mixed-use property are charged at 0% up to £150,000, 2% on the next £100,000 and 5% above £250,000. VAT, if charged, is part of the price on which SDLT is calculated, which many buyers overlook. Reliefs exist for some transfers within groups and for charities, among others.

A premium is taxed on the freehold rates, and the rent is taxed separately on its net present value: 0% up to £150,000, 1% on the next slice up to £5 million and 2% above. The two are added together. A lease with a long term or rent reviews can lead to further returns later, so keep your lease advisers informed.

Yes. A SIPP or a Small Self-Administered Scheme can buy commercial property, and rent paid to the pension is not subject to income tax within the scheme. A business can rent the property from its owners' pension, subject to commercial terms. The rules are strict, so we work with the scheme administrator and your financial adviser. See our SSAS page.

There is no one answer. A trading company owning its premises can be simple, but the property is exposed to trading risk and may complicate a future sale or business relief. Owning personally, in a separate property company or in a pension can protect the asset and open up different tax outcomes. We compare the options with your numbers.

It can, depending on the facts. A building you own personally and let to a trading company you control can qualify for business relief at 50%, not 100%, and only if your shares in the company also qualify. A building owned by the trading company is reflected in the value of the shares, where 100% relief applies to the first £2.5 million of combined qualifying property from 6 April 2026, and 50% above that. Pure investment letting does not qualify. Get specific advice.

Yes, and many owners do this for asset protection. The structure can be a holding company with a trading subsidiary and a property subsidiary. Care is needed so that the property does not undermine trading status for reliefs, and so that intra-group rent and transfers are priced and documented correctly. SDLT, VAT and group relief rules all interact.

Fixtures such as heating, lifts, lighting and fire protection can qualify as plant and machinery, with the £1 million annual investment allowance giving up-front relief. The structures and buildings allowance gives 3% a year on certain non-residential construction since 29 October 2018. A survey and a section 198 election with the seller often matter. See our Capital Allowances page.

Individuals pay income tax on profits at 20%, 40% or 45% in 2026/27, and from 6 April 2027 property income rates rise to 22%, 42% and 47% in England, Wales and Northern Ireland (Scotland will set its own). Section 24 does not restrict finance costs on wholly commercial property loans. A company pays corporation tax. The tax depends on who owns it, and on VAT status for the income side.

Individuals pay CGT, at 18% or 24% in 2026/27, and a non-UK resident must report any UK property sale within 60 days. UK residents report commercial sales on their tax return. A company pays corporation tax on the gain. VAT can apply to the sale if the building is opted, and capital allowances balancing adjustments may arise. Business Asset Disposal Relief may be available in limited circumstances.

A conversion changes the tax profile: VAT treatment on the works can differ, a certificate on form VAT1614D matters where an option exists, SDLT classification may alter, and capital allowances and the structures allowance can be lost or restricted. Whether you are a developer or investor also affects the income tax or CGT result. Get advice before you start.