property taxes on commercial leases
Businesses intending to enter into a commercial lease need to be aware of significant tax consequences of doing so. Professional advice from a business’ accounts and property solicitors should always be taken from outset. The following is a brief overview of some of the main taxation issues involved.
Value Added Tax (VAT): landlords must in certain circumstances charge VAT on rent and other payments under commercial leases. Landlords must charge VAT on new buildings (defined as buildings no more than three years old) and on buildings which landlords have previously opted to tax for VAT purposes. Clearly, tenants unable to recover VAT would be well advised either to find commercial leases where no VAT is chargeable and/or write into the lease a special term to prevent the landlord from requiring the tenants to pay the VAT element on the rent and other payments.
Stamp Duty Land Tax (SDLT): since 2003 tenants of commercial leases have had to pay SDLT as the successor tax to stamp duty. SDLT on long leases with high rents can often be very substantial, often running into tens of thousands of pounds. Experienced commercial property solicitors can advise on strategies either to restrict the total SDLT payable or to spread out the SDLT over the lifetime of the lease.
Capital allowances: tenants may be entitled to claim special taxation allowances on capital costs incurred on lease premises. Unlike revenue allowances which are generally only available against the current tenants’ revenues, capital allowances may be capable of backdating to earlier tenants’ period of occupation. It would always be worthwhile for tenants to identify whether they can claim capital allowances on lease premises, as, if they are lucky, they may be entitled to valuable tax allowances.