Tax Intelligence Hub
How Tax Works on Commercial Property in the UK
Offices, retail, industrial and mixed-use property use a different SDLT scale, allow capital allowances, and add the VAT opt-to-tax decision that residential never faces.
Educational guidance only. This is general information about how UK property taxes typically work by deal type — it is not tax, legal or financial advice, and rates and rules change. Always confirm your position with a qualified accountant or tax adviser before making any investment decision.
Buying-in taxes
- Non-residential SDLT — commercial and mixed-use property uses the lower non-residential scale, with no 3% residential surcharge.
- VAT on purchase — chargeable where the seller has opted to tax; often recoverable if you register, but affects cashflow and SDLT (SDLT is charged on the VAT-inclusive price).
- Transfer of a Going Concern (TOGC) — can remove VAT on a tenanted purchase if strict conditions are met.
- Devolved equivalents (LTT / LBTT) for Wales and Scotland.
Taxes while you own & let it
- Income Tax / Corporation Tax — on rental profit; Section 24 does not restrict genuine commercial finance in the same way as residential BTL.
- Business Rates — apply rather than Council Tax; empty-property rates can bite during voids.
- Capital allowances — qualifying fixtures, plant and integral features can give meaningful annual relief.
- VAT on rent — standard-rated where you have opted to tax; otherwise exempt (which can block input VAT recovery).
Taxes when you sell
- Capital Gains Tax — at non-residential rates for personal ownership, or Corporation Tax within a company.
- VAT on sale — depends on whether the opt-to-tax remains in place; TOGC may again apply.
- Business Asset Disposal Relief — potentially available in genuine trading scenarios.
- Inheritance Tax — part of your estate; Business Property Relief may apply to genuine trading businesses (not to pure investment property).
Tax lifecycle
VAT Opt-to-Tax — the commercial-only decision
Commercial property is VAT-exempt by default, but an owner can "opt to tax". This flips the VAT flow entirely.
Not opted to tax
- No VAT charged on rent or sale
- Input VAT on costs generally NOT recoverable
- Simpler, but recovery blocked
Opted to tax
- VAT charged at 20% on rent and sale
- Input VAT on costs recoverable
- SDLT charged on the VAT-inclusive price
- Can deter non-VAT-registered tenants
Worked Example — Small Office Investment
£500,000 office let to a single tenant at £40,000/year, bought by a limited company, seller has opted to tax.
On the VAT-inclusive price where VAT applies.
Recoverable if you register and opt to tax — a cashflow, not a cost.
Qualifying plant and integral features give annual relief.
Annual position — where the rent goes
Commercial vs Residential — key tax differences
Colour indicates the factually more/less favourable figure per row, not a recommendation.