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How Do I Avoid CGT On Commercial Property?

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As a seasoned property expert with years of experience helping landlords sell commercial properties and this is one of the biggest question many owners’ minds is how to avoid paying Capital Gains Tax (CGT).  It’s a valid concern – after all, who wants to see a big chunk of their hard-earned profits going straight to the taxman?

But here’s the good news: there are a few clever strategies you can use to minimise or even eliminate your CGT liability when selling commercial property. And one of the smartest moves you can make is to sell your property to a specialist buyer like Property Saviour.

First, let me give you a bit of background on CGT. In a nutshell, it’s a tax you pay on the profit you make when selling an asset, such as a commercial property. The amount of CGT you owe depends on a few factors, including your tax bracket and how long you’ve owned the property.

Now, there are a few ways you can reduce your CGT liability when selling a commercial property. One option is to make use of your annual CGT allowance, which allows you to make a certain amount of profit each year without paying any tax. As of the 2023-2024 tax year, the CGT allowance is £6,000.

Another strategy is to offset your CGT liability against any losses you’ve made on other assets. For example, if you’ve sold another property at a loss, you can use that loss to reduce the amount of CGT you owe on your commercial property sale.

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How do I avoid CGT on commercial property?

One way to avoid paying capital gains tax is to own a commercial property in a Limited Company structure.

When you purchased the commercial property, one of the biggest decisions you’ll have made is whether to own the commercial property in your personal name or limited company? 

 

Personal Ownership vs Limited Company Ownership

First, let’s take a look at the key differences between personal ownership and limited company ownership of commercial property.

When you own a commercial property in your personal name, you’ll be subject to CGT on any profits you make when you sell the property. The amount of CGT you’ll pay will depend on your tax bracket and how long you’ve owned the property, but it can be a significant chunk of your profits.

On the other hand, when you own a commercial property through a limited company, you’ll pay Corporation Tax on any profits you make from the property rather than CGT. The current Corporation Tax rate is 19%, which is lower than the highest CGT rate of 28% for higher-rate taxpayers.

 

CGT Implications of Personal Ownership

If you own a commercial property in your personal name and decide to sell it, you’ll need to pay CGT on any profits you make over and above your annual CGT allowance (currently £6,000 for the 2023-2024 tax year).

The amount of CGT you’ll pay will depend on your tax bracket:

  • Basic-rate taxpayers pay 10% CGT on profits from commercial property
  • Higher-rate taxpayers pay 20% CGT on profits from commercial property

 

So, for example, if you’re a higher-rate taxpayer and you sell a commercial property for £500,000 that you originally bought for £400,000, you’ll need to pay 20% CGT on the £100,000 profit (minus your annual CGT allowance). That works out to £18,800 in CGT.

 

 

CGT Implications of Limited Company Ownership

If you own a commercial property through a limited company and decide to sell it, you won’t need to pay CGT on the profits. Instead, the profits will be subject to Corporation Tax at a rate of 19%.

This can be a significant advantage, particularly for higher-rate taxpayers who would otherwise be paying 20% CGT on their profits.

However, it’s worth noting that when you sell a commercial property owned through a limited company, you’ll need to extract the profits from the company in order to access them. This can be done through a variety of methods, such as paying yourself a dividend or a salary, but each method will have its own tax implications that you’ll need to consider.

 

The Pros and Cons of Each Approach

As you can see, there are pros and cons to both personal ownership and limited company ownership of commercial property when it comes to managing your CGT liability.

Personal ownership can be simpler and more straightforward, but you’ll be subject to CGT on any profits you make when you sell the property. Limited company ownership can be more tax-efficient, but it comes with additional complexities and administrative requirements.

Ultimately, the best approach for you will depend on your individual circumstances, including your tax bracket, your long-term investment goals, and your appetite for complexity.

How do I avoid CGT on commercial property
Prior tax planning can help you save money. Speak to your trusted accountant or tax advisor.

Why tax doesn't have to be taxing?

Paying taxes is a nice problem to have.  Always speak to your accountant or tax advisor to help you manage your affairs and remain on the right side of HMRC.

Here’s why:

1. We’re cash buyers, which means we can move quickly and complete the sale in a matter of days or weeks, rather than the months it can take with a traditional buyer. This can be particularly valuable if you’re looking to sell your property before the end of the tax year to take advantage of your annual CGT allowance.

2. We’re experts in commercial property, which means we understand the unique challenges and opportunities that come with owning and selling these types of assets. We can provide you with tailored  support throughout the sales process, helping you to maximise your profits.

3. We offer a range of flexible sales options, including sale and leaseback arrangements that allow you to sell your property and then lease it back from us, giving you a lump sum of cash while still being able to use the property for your business. This can be a smart way to free up capital.

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