UNITED KINGDOM, Real Property Taxes & Law


All purchases of UK commercial property are subject to the following:

  • Value Added Tax (VAT): VAT at 20% may be charged on the purchase price of commercial property or mixed-use properties. This is applicable in cases with new buildings and those where the seller has opted to tax. In cases where the sale is subject to VAT, there is little practical alternative other than to ‘opt to tax’. That is the effect of making the sale itself VAT-free and consequently mitigating the SDLT payable. Where there is no immediate need to opt to tax, commercial property owners should consider the best strategy for the property as a whole, taking into account future expenditure plans and the likely tenant-mix profile as some tenants will not be able to recover the VAT paid on rent.
  • Stamp Duty Land Tax (SDLT): SDLT is applicable if the commercial property is situated in England, Wales or Northern Ireland. SDLT on commercial property starts at 2% for transactions over £150,000 and increases (on a ‘slice’ basis) to 5% for transactions over £250,000. The same rates of SDLT apply to individual, trustee and corporate purchasers. SDLT applies to the VAT inclusive transaction value, where VAT is payable.
  • Land & Buildings Transaction Tax (LBTT) and Land Transaction Tax (LTT): LBTT is applicable if the commercial property is situated in Scotland and in addition, from 1 April 2018, SDLT is replaced in Wales by a devolved LTT. In more general terms, LBTT and LTT are both very similar to SDLT however the administrations are not alike.
  • Other considerations on purchase of commercial property: A purchaser must review the capital allowances position and consider making a section 198 election. Also, they must consider the VAT position of the property and whether VAT will be payable on its acquisition or whether the property can be transferred as a VAT exempt ‘transfer of a going concern’ (TOGC). This depends on whether the sellers have opted to tax for VAT purposes; this may, in part, depend on whether their tenants are able to recover any VAT charged on rents. To qualify for TOGC treatment, the purchaser will need to register for VAT.

    Commercial property tax for non-UK investors

    The UK tax regime applicable to non-UK investors in commercial property has been fairly generous. The transaction tax on a commercial property acquisition is low and so is the effective rate of tax on gains realised on the disposal of the commercial property.

    Most UK commercial property ventures exist with a non-UK company acting as a special purpose vehicle. This is a tax efficient way out that offers options in terms of future disposal routes when an investor wants to exit the investment. Investment into a UK commercial property through a non-UK company removes the possibility of any applicability of UK inheritance tax.