Avoiding Capital Gains Tax (CGT) on commercial property is a common goal for property investors and business owners in the UK. There are several strategies you can employ to minimise your tax liability when selling commercial property.
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Understanding CGT on Commercial Property
CGT is charged on the profit you make when selling a commercial property. For UK residents, the rates are:
- 10% for basic rate taxpayers
- 20% for higher and additional rate taxpayers
The tax is calculated on the difference between the purchase price and the sale price, minus any allowable expenses.
Strategies to Reduce CGT
Here are some effective ways to minimise your CGT liability:
- Use your annual CGT allowance
- Offset losses against gains
- Transfer ownership to a spouse or civil partner
- Hold the property for longer
- Reinvest gains using Business Asset Rollover Relief
- Consider Incorporation Relief
- Invest in a pension.
Use Your Annual CGT Allowance
Every individual has an annual CGT allowance (£6,000 for the 2022/23 tax year). You only pay CGT on gains above this threshold.
Offset Losses Against Gains
If you’ve made losses on other asset sales, you can use these to offset gains on your commercial property sale.
Transfer Ownership to a Spouse or Civil Partner
Transfers between spouses are exempt from CGT. This allows you to use both partners’ annual allowances.
Hold the Property for Longer
The longer you hold a property, the more likely you are to benefit from lower CGT rates.
Business Asset Rollover Relief
This relief allows you to defer CGT if you use the proceeds from the sale to buy new business assets within three years.
Incorporation Relief
If you transfer your business, including the property, to a limited company, you may be able to defer CGT.
Invest in a Pension
Contributing to a pension can reduce your overall income, potentially lowering your CGT rate from 20% to 10%.
CGT Exemptions & Reliefs
| Relief Type | Description |
|---|---|
| Business Asset Rollover Relief | Defer CGT by reinvesting in new business assets |
| Incorporation Relief | Defer CGT when transferring business to a limited company |
| Gift Hold-Over Relief | Defer CGT when gifting business assets |
Can I avoid CGT by living in my commercial property?
While you can’t completely avoid CGT this way, you may be eligible for Private Residence Relief on the portion of the property used as your main residence.
How long do I need to own a commercial property to reduce CGT?
There’s no specific time period, but holding the property for over three years can help lower your CGT rate from 20% to 10%.
Is CGT payable on commercial property sold by a limited company?
Limited companies pay Corporation Tax on gains from property sales, not CGT.
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