Any sensible property investors market should be fully aware of the Capital Gains Tax. This tax is encountered when disposing of any commercial property, building, land or lease and can include business premises such as shops, offices and warehouses. You usually dispose of your investment when you sell it, gift it to someone with no charge, exchange it or transfer it, or receive compensation from it.
Non-UK residents
On 6 April 2019, the Capital Gains Tax exemption for non-UK residents was removed. Non-UK residents will now be taxed on gains accrued from that date when disposing of their properties. This tax covers all types of buildings within the UK, including commercial properties.
The changes align the UK with a non-resident capital gains tax structure similar to other Western economies and will impact foreign companies, private individuals, overseas trusts and JPUTs – Jersey Property Unit Trusts.
Foreign companies will be charged at the corporation tax rate. Private individuals will be taxed at the normal CGT rate of 20% for commercial property and 28% for residential property.
Anti-avoidance rules will prevent those impacted to avoid the tax by restructuring. Those exempt from the tax on their disposals will include investment vehicles such as Sovereign Wealth Funds, REITs and pension funds.
Why buyers are turning to commercial properties?
Commercial property investors tend to enjoy special capital gains tax dispensations when moving on and selling up their business. You can apply for a more unique capital gains tax process qualify for, perks like asset taper relief, with a good slice of your profits remaining largely untouched by the tax office for up to two years.
As a general rule, you’ll never pay more than a low-level amount of tax on your profits, with the annual capital gains tax exemption. However, it can be a difficult process when looking to reap any special benefits. You’ll be outright refused any help if your company is located on the stock exchange, or another listing exchange elsewhere online.
How to find out your gain value
In order to work out what your gain profit would be, you’ll need to ascertain the difference between property and the approximate value of your disposed asset. Then, refer to market value if the property in question was a gift, it was sold by you to someone else for less than value to help the buyer, or you inherited it. You can also use the market value if you owned the property before April 1982.
You must also consider rules around selling in special circumstances, such as when you only sell a lease or a select part of your land. Selling in special circumstances rules apply when you only sell a lease, or a select part of your land. Additionally, this applies if your property is compulsorily purchased.
Deducting costs from your gain
After you’ve established your gain, it’s time to start offsetting profit taxation by taking away the costs of any significant improvement works carried out. It’s worth noting, tasks like decorating and more superficial enhancements can’t be classed as deductions. Additionally, you can remove the costs of solicitor and estate agent fees from your gain.
Further reliefs
Those looking for further tax reliefs can apply if the property in question was once a business asset, their home or occupied by a relative who is dependent. This is a much more exhaustive subtopic, so it’s worth looking into the latest guidance on Private Resident Relief and its rules on dependents for your reference.
Time to calculate what’s left to pay
Once you’ve worked out your gain and made the necessary deductions you’ll know whether or not you need to pay capital gains tax. If your gain amount is over the minimum threshold, you’ll need to make a payment against outstanding capital gains. You can report any tax you still owe annually as part of your self-assessment form, or immediately using the online Capital Gains Tax service.
Should you opt for the latter approach, you may need to send your documentation again along with your usual self-assessment process each year, so keep a very detailed archive of all your records to ensure both reports match up. Next, it’s time to file your report. Make a checklist of all the important references you need to include, from thorough calculations that detail capital gain or loss in detail. You’ll want extensive information from your own records about costs received and what you received.
Be prompt with payment
If you’re a UK resident using the Capital Gains Tax service, ensure you have registered for a Government Gateway user ID and password and have your details ready to go. No need to wait until the end of the tax year to make a payment. As soon as you’ve calculated your gain and any tax owed, report it by the final day of the year subsequent to the year you received the gains. Remember, the tax year runs from 6 April up until 5 April the subsequent year. Once that’s all been done and your gains have been filed and reported, you’ll receive an HMRC letter or email correspondence confirming your reference numbers and letting you know of ways to pay.
Alternatively, you can report your gain in a self-assessment tax return in the year post the disposal of your property assets. Even if you don’t ordinarily file a tax return for self-assessment, do download one and send a form in by the end of January.
Get help with capital gains tax for commercial property investment
Remember, late payment and tax returns can bring about severe penalties, so ensure you’re nothing but punctual when it comes to reporting your gain. If you are new to the world of self-assessment and the commercial property investment, make sure you have got a reliable service provider at your side during every step of your capital gains tax calculation and return.
Get in touch with the team today by contacting us here.
