Commercial property — offices, retail, industrial, mixed-use — plays by a different set of tax rules to residential. Lower Stamp Duty, no 3% surcharge, capital allowances, and the VAT opt-to-tax decision all make it a genuinely distinct discipline. Our worked £500,000 office shows how these interact.
Cheaper to buy
Commercial and mixed-use property uses the non-residential SDLT scale, and crucially the 3% additional-property surcharge does not apply. Compared with a residential buy-to-let of the same price, the entry tax is materially lower — one of the main reasons investors graduate into commercial.
The opt-to-tax decision
Commercial property is VAT-exempt by default, but an owner can elect to opt to tax. Opting makes rent and sale standard-rated at 20% and lets you recover input VAT on costs — in the worked example that is £100,000 of recoverable VAT on purchase, a cashflow item rather than a true cost. The trade-off: SDLT is then charged on the VAT-inclusive price, and VAT-sensitive tenants may be deterred.
TOGC — selling without VAT
Buy a tenanted commercial property as a going concern, match the VAT position, and the sale can qualify as a Transfer of a Going Concern with no VAT charged at all — improving cashflow and cutting SDLT. It is condition-heavy, so it needs careful structuring.
Capital allowances and Section 24
- Qualifying fixtures, plant and integral features (heating, wiring, lifts) attract capital allowances that give real annual relief — a specialist survey often finds more than expected.
- The Section 24 interest restriction does not apply to genuine commercial finance, so interest is generally relievable against commercial rental profit.
- This full interest relief is the same advantage that pushes residential investors toward company ownership on the buy-to-let and HMO guides.
On exit
Personally-held commercial property pays non-residential CGT rates on the gain; company-held property pays Corporation Tax instead. VAT on the sale depends on whether an opt-to-tax remains in place, and TOGC may apply again on a tenanted disposal. If you are building rather than holding, the development & flip guide covers the trading-income treatment that applies to new schemes.