Business property taxes are likely to apply to businesses with commercial premises. There are two key commercial property taxes: business rates and stamp duty land tax. You also need to understand how VAT applies to business premises. Understanding business property taxes can help ensure that you take advantage of any available tax reliefs and that you aren't caught out by unexpected commercial property tax charges.
Ask your accountant for help and for advice on how to reduce the total business property tax (and other taxes) you pay.
Commercial property taxes - business rates
Business rates are charged on most commercial properties. The tax payable is calculated using the rateable value of the premises and the business rate multiplier. There can be scope to appeal against your rates if you think the rateable value was wrongly assessed or there has been a substantial change to your commercial property.
If you own a commercial property, you are liable for the business rates. If you rent a business property, the terms of your lease or rental agreement should make it clear whether you or your landlord is responsible for paying the business rates. Complications may arise if you use part of your home for business. Depending on the circumstances, you may become liable for business rates.
Business rates are largely inevitable, though there are a few exemptions for certain types of business property, such as agricultural buildings. There are also reliefs for small businesses and businesses whose rateable value has increased substantially. Empty business property tax relief is given for three months (or longer in some cases).
Commercial property taxes - stamp duty
Business property taxes can also apply when you purchase commercial premises - either freehold or with a lease. This takes the form of stamp duty land tax (SDLT).
The amount of this commercial property tax depends on the value of the transaction price. No stamp duty is payable on purchases costing less than £150,000 (or £250,000 for residential property). Amounts paid over the initial stamp duty-free band are calculated on the amount of purchase price or net present values of the lease falling within each tax band.
Businesses in designated Investment Zones qualify for full SDLT relief for land and buildings purchased for use or development for commercial purposes, and for purchases of land and buildings for new residential development.
When you sell premises, you may be liable to tax on any gain you have made. Capital gains are taxed differently depending on whether you own the property as an individual (eg a sole trader or partnership) or as a company.
Commercial property taxes - Annual Tax on Enveloped Dwellings
The Annual Tax on Enveloped Dwellings (ATED) applies to some residential properties (dwellings). Most residential properties are owned by individuals and so are not subject to ATED. However, some residential properties are owned completely or partly by corporate bodies and are said to be 'enveloped' because ownership of the property is held within the company.
ATED is payable if:
- the enveloped property was valued in excess of £500,000
- the property is in the UK
- the property is owned wholly or partly by a company
You must revalue your property every five years. The 2023/24 tax year was a revaluation year. You must use the valuation date of 1 April 2022 or the date of acquisition if later, to revalue your property.
If the property meets all three criteria, you will need to complete a tax return and pay ATED. The amount of ATED payable depends on the value of the property.
Properties that have attracted ATED may be subject to a higher rate of SDLT when purchased.
Commercial property and VAT
Commercial property is normally exempt from VAT (although freehold sales of new commercial buildings do attract VAT). So, for example, a landlord will not charge VAT on the rent - but nor will the landlord be able to recover any VAT paid out on expenses.
The owner of land and buildings can 'opt to tax', asking HM Revenue & Customs to remove the exemption so that VAT applies. For example, this might suit a landlord whose tenants are VAT-registered (and so can recover the VAT they are charged), allowing the landlord to recover VAT on expenses.
The rules are complicated, but it's essential to understand the VAT status of any commercial property you own, occupy or are planning to buy or rent. Otherwise you may find yourself with a large commercial property tax bill that you cannot recover.
