Business Services, Business Tax, Capital Gains Tax, Entrepreneur's Relief, Personal tax, Property, Small Business, Tax Planning, Tax Relief, Taxation

Capital gains tax issues for business owners who own commercial property

By RJP LLP

Updated: 10th September 2019

Over the years, many company owners have taken a commercial decision to personally own their business premises. In many areas, it’s cheaper to buy property than to rent and there are also some tax efficiencies.

Using common scenarios, this blog highlights the capital gains tax issues for those who decide to purchase commercial property and how business owners are affected, suggesting some alternative approaches. Consider the following scenarios to appreciate the different impacts of new tax rules:

Situation 1: Claiming entrepreneurs’ relief on commercial property

This example explains the tax impact if you do not charge the company rent and sell the property

John is the managing director and main shareholder of a limited company. He also personally owns the offices from which the company trades, having bought them as an investment. John has chosen not to charge his company rent for its use of the premises, but has instead drawn a small amount of dividend income from the company. His total income has been within his basic rate band each year and he has therefore minimised the tax payable on the dividend income he receives. Because he has received no rental income and because the property is used for the business of his personal company, when he sells the commercial property he will be able to claim entrepreneurs’ relief and pay capital gains tax at the rate of 10%.

Situation 2: Claiming loan interest tax relief on a commercial property

Tax impact if you do charge the company rent to cover a mortgage and sell the property?

Katherine is in a similar position to James as a shareholder and company director. She also owns the company premises but rather than let the company occupy the property rent free, she has opted to charge rent which she charges at a rate which is lower than market rate. The rental income she receives is chargeable to income tax, but she has a loan on the property and is able to deduct the loan interest in order to reduce the tax she pays on the income. Since it is commercial property there is no restriction to the rate of tax she can claim on the loan interest she pays. On a disposal of the property she will still be able to claim entrepreneurs’ relief, but this will be restricted by the amount of rent she has charged.

Situation 3: Obtaining rental income from commercial property in lieu of salary

Peter is also a company director and owner of his company premises. He charges his company a full market rental for the use of his commercial property and declares this income in full on his self-assessment tax return. If he didn’t take a rental income he would need to receive a higher salary or dividends from the company.

It is beneficial for Peter to receive rental income rather than additional salary or dividends because rental income, whilst attracting corporation tax relief for the company, does not incur employee’s or employers’ national insurance contributions.

Tax planning is never an exact science

These scenarios serve to highlight the many different tax issues a company owner with commercial property interests needs to consider when he or she rents personally owned property to their company. There are pros and cons to each situation we have highlighted. Each case needs to be evaluated individually, taking into consideration the immediate taxation implications and longer-term ownership plans, including the relative benefits of preserving access to other capital gains tax relief in the future.

partners@rjp.co.uk

How to get onboard with RJP

Talk to us

Have an initial discussion with a member of the RJP team to identify ways we can enhance your business's growth with our comprehensive support and strategic advice.

Hassle-free migration

Choose RJP and we'll smoothly manage all transitions, handling paperwork, coordinating with your current accountant, and ensuring no deadlines are missed for a worry-free experience.

A pathway to growth

Finally, we will send you the required documents to sign and return, leaving you to continue leading your business, backed by our abundant, responsive advice and support.

2024 Budget in depth – Key changes to capital gains tax

Business Services, Business Tax, Personal Taxation

Budget 2024 In depth – Inheritance tax changes

Business Services, Business Tax, Personal tax

Budget 2024 – What are the new tax rules for non-doms?

Personal tax, Probate and Inheritance Tax

Here’s what our clients have to say

Hear directly from our clients about how RJP's personal, straightforward approach has made all the difference in their business and personal success.

"I just wanted to drop you a short note to say how grateful I am for the support that RJP has provided over the past 4 weeks while our Financial Controller was away. I struggle to comprehend how much work your staff get through during their weekly visits and they are always a pleasure to have around the office."

"I wanted to write and express our gratitude for your help and hard work in getting Probate through and settling all the taxes. I am so pleased that we selected RJP, as your professional help and updates throughout this process have been invaluable. If at any time in the future Probate assessment may be needed, you will be our first port of call. Once again, many thanks to the whole team."

"I would like to take this opportunity to thank you very much for the amazing job you have done navigating us through this whole process. My family and I also really appreciate the care and compassion demonstrated by you and your team in every dealing. Our thanks to everyone."

"Just a quick e-mail from me to thank you for achieving the target for producing the draft accounts – it is very much appreciated and gives a first class impression of your firm. Many thanks."

"RJP provide our company with a complete service which takes the stress and strain away from the day to day running of our accounts! Their understanding of our business and their patience and advice is invaluable."

Get the latest tax tips to your inbox every month

FAQs

At RJP, we understand that keeping a finger on the pulse of your business's health is crucial. That's why we offer management reporting services—think of them as a regular health check for your company. These insights show you the real-time performance of your business, helping you make informed decisions to nurture and grow your enterprise.

We love seeing your business flourish! Growth and improvement are at the heart of our practical advice. From the ins and outs of everyday operations to big-picture strategic moves, we're here to offer clear, actionable steps that can propel your business forward.

We know dealing with the issue of compliance and auditing can be less than thrilling. That's exactly why we're here—to handle the complex stuff so you don't have to. We offer comprehensive compliance services, ensuring everything is up-to-date without you having to wade through a sea of regulations.

Absolutely! There's a world of opportunity out there to support your business financially, and we're well-equipped to be your guide. We can help you understand and access HMRC’s tax relief schemes that are relevant to you and your business, making sure you're not missing out on any potential benefits.

When you need us, we're just a call or an email away—no question is too small or too large. We're known for our quick responses and our fixed fees mean you can reach out without worrying about unexpected costs. Plus, we always keep things simple and straight to the point. We're not just your accountants; we're part of your team, ready to support both your business and personal needs.