Business Property Relief is a UK tax relief granted to businesses that involve property. The relief applies when the business has non-trading income from letting out their own properties or acquiring them for non-trading purposes, and some types of trading activity such as renting out assets.
It also includes those who buy from developers with the intention of leasing them out instead of living in the residence themselves. This article will take you through all things Business Property Relief – what it is, how it works and whether you might be eligible. or not?
About Business Property Relief
Business Property Relief is a tax relief you can receive when your own or an asset you own is a business asset and you are on the basis of receiving an income from this asset. This property would include your property such as a flat or office block.
You can then claim a 30% capital gains tax (CGT) relief on any profit made on the purchase of the property. It also includes buying assets like commercial property, as long as they are trading assets that are already in a business or company’s possession.
The key difference is that this relief does not apply to properties like a property that is under a custodianship, or any land you have an interest in that you do not live on.
How does Business Property Relief work?
The first thing to know about Business Property Relief is that it is a personal savings tax relief. Like any other relief, it has to be claimed on Schedule 1.
The structure of Business Property Relief will depend on the type of business involved. It will be worth deducting income tax from your profits, but can also be capital or profit-based (though your qualifying expenses and the relevant capital allowances can all be subtracted first).
When Business Property Relief is used in calculating the profits you can deduct, it reduces your taxable profit by the Business Property Relief amount.
Who can apply for Business Property Relief?
While there is no overall limit to how many businesses can claim relief, the relief is available to those businesses that meet certain criteria. Categories of eligible business include private limited companies, partnership companies, limited liability partnerships and companies that are taxed on a territorial basis. Business Property Relief applies to those who are owner-operated, and have the right to enter into contracts and make their own property available for sale or letting.
This is regardless of whether you are a sole trader or company. In the case of partnership companies and companies taxed on a territorial basis, the relief is payable irrespective of whether the property is directly rented out or bought for rental purposes.
What is the timing of Business Property Relief?
Business Property Relief is a tax relief that can be claimed by businesses in the United Kingdom. The timing of Business Property Relief depends on whether you are claiming for an investment or a business asset.
Investment property, such as rental property, may qualify for Business Property Relief up to six years after the date it was acquired if it has been let out during this time.
A business asset would only qualify if it has been used solely in your trade and profession from day one of acquiring it.
What are the limitations of Business Property Relief?
There are some limitations on how Business Property Relief can be claimed, including its application to specific assets and property transactions, and if the property is not for sale for a certain period. For more information on the rules surrounding Business Property Relief, please visit the HMRC website here.
What are the tax benefits of Business Property Relief?
The key benefit of Business Property Relief is that it allows business owners to reduce the amount of tax they pay on rental income and capital gains when they sell their own property. Income from rental income can be taxed at basic rate, whereas capital gains are taxed at a rate of 28 per cent.
What are the disadvantages of Business Property Relief?
Property relief is a great way to reduce the amount of property tax you have to pay. However, there are some disadvantages of Business Property Relief. One disadvantage is that when property taxes go up, your business might not be able to afford them and will then have to close down or move elsewhere.
Another disadvantage is if you don’t own the building where your business operates out of, you may not qualify for this type of tax relief because it only applies to those who own their buildings.
There are several disadvantages of property relief when it comes to small business owners that might make them rethink their options.
- increased taxes
- decreased value of your property
- possible difficulties with selling
The tax reliefs outlined in this article will significantly boost the business earnings of most commercial property owners, and could make a substantial difference to the financial planning for their business. It will also increase the longevity of many businesses, giving them more capital to invest or to grow.
Methodology: Assessing the income generated by a property is one of the most important parts of the Assessment of the business asset; it shows how much tax would be saved by carrying out business activities. The income earned by Business Property Relief should be taken into account.