Personally owned properties used in someone else's trade

October 2006 Tax Newsletter

The notes that follow point to some of the tax consequences if you personally own a commercial property that is used by a trading business.

1. Capital Gains Tax on sale.

As long as the property is let to an unlisted trading company, (could also be a sole trader or partnership if let after the 5 April 2004) it will be classified as a business asset for taper relief purposes. Potentially higher rate tax payers may only pay 10% tax on sale if the property is owned for more than 2 years. Don't forget that if you let the property to a sole trader or partnership before the 6 April 2004 this earlier period up to the 5 April 2004 will complicate the calculation of the final capital gains tax bill - owners in these circumstances can expect to pay more than 10% tax on a subsequent sale of the property.

There are no restrictions on this favourable tax treatment if the owner charges rent for the use of the property.

2. Owner's income tax status.

Any rents charged by the owners, less allowable costs, interest charges and in some cases Industrial Buildings Allowances, will be subject to tax.

If the property is provided rent free this may result in the loss of tax relief for costs met by the owner.