Do you own property that is being, or has been, used in your business? Don’t get caught out!

9 May 2019

Many business owners make the decision to acquire the premises they operate their business from.  Property may be acquired that is the perfect find, for example, a logistics business that needs plenty of land for vehicles to be stored may snap up the ideal spot and their business grows, over time using all of the land.  Others may be restricted by cash flow, start with what they need and buy bigger premises as their business evolves. Some may even hang on to initial purchases and acquire a portfolio of investment property along the way.

The reasons many businesses will acquire property and land as opposed to renting is no different from those individuals trying to get on the residential property ladder, in the UK we generally like to own our premises and repay the capital.

As mentioned, the journey to acquiring property can vary but so too can the ownership of the property; a mixture of property owned personally or within the company itself can end up taking place.

How property used in a business is held is really important from a tax perspective and equally, if the property ceases to be used in the business, it can have a significant and unknown impact on your tax position.

Many may also be unaware that you can hold commercial property in pensions and there are a number of benefits in doing so. For example, this planning will enable you to fund your pension with rents being paid by your own company, and the rents paid will receive Corporation Tax relief. In addition to this, commercial property owned in a pension keeps any capital growth of the property outside of the Capital Gains Tax regime and the equity within the property outside of the Inheritance Tax regime. A neat piece of planning!

There are many options available to ensure both business needs are met and tax efficiency is reviewed but still this area can be quite easy for business owners to get caught out. 

Did you know…? 

The sale of business assets owned personally can attract a lower rate of Capital Gains Tax; 10%. This is known as Entrepreneurs’ Relief.  

But, don’t get caught out. If you hold a property in your personal name and rent it to your business, receiving full market rent, you are unable to claim the 10% rate, instead of paying 20%.

Did you know...?

If you hold property in your personal name and use it in your business, this may qualify for 50% relief from Inheritance Tax if held in your estate on death. 

But, if you had owned the property directly in the company or group structure, it may qualify for 100% relief from Inheritance Tax.

Tip: How you hold business property is important for many taxes and it is also important to understand the loss of relief if you suddenly stop using the property in your business.  

For more information on how you structure the ownership of your business premises and any other property your business may hold, please get in touch with Jennie Brown on 01536 646000 or jbrown@ellacotts.co.uk.