Buying commercial property: what do sole traders and limited companies need to know?

Why would I want to buy commercial property? 

Many businesses need a dedicated space to operate from, whether it’s a shop, office or workshop. However, rent can be a major expense for businesses, particularly in major cities, and it is subject to periodic increases. 

Buying your premises can be advantageous because: 

• Ownership gives you more control and certainty over rent and operational costs. 
• It allows you to customise the space without landlord restrictions. 
• You may have an opportunity to rent out surplus space to generate extra income. 
• You may benefit from capital appreciation if the property increases in value over time. 

However, it does not always make sense: 

• When your business is still growing, you may need to invest in products, services or staff rather than property. 
• Purchasing can tie you to a location for longer than desired. 
• You’ll be responsible for maintenance and repairs, which may exceed the costs you faced as a tenant. 
• Stamp duty and other upfront costs increase as the property value rises. 

It is worth noting that if renting out any surplus space. from April 2027 property income will be taxed at new higher income tax rates - basic 22%, higher 42% and additional 47%. 

Let’s take a closer look at the accounting and tax implications, for sole traders and limited companies.  

Sole traders 

You can buy the property personally, but you cannot charge rent to your business. The law treats you and the business as the same entity, so there’s no deductible rent expense. You can deduct: 

• Repairs and maintenance costs. 
• Running costs for the business use portion of the property. 
• Capital allowances on qualifying plant and machinery (if you use the accruals basis). 
• Structures & Buildings Allowance (SBA) at 3% on new qualifying works carried out on or after 29th October 2018.  

Mortgage interest is not fully deductible. Instead, you can claim: 

• a tax credit equal to 20% of the interest (which is the equivalent to basic rate tax relief) if you use the accruals basis, or  
• a maximum of £500 per year for interest paid on all loans if you use the cash basis. 

The property could provide a source of income in retirement if you keep it long-term. You may qualify for 50% Business Relief for inheritance tax if certain conditions are met. You are personally responsible for the mortgage, so you must continue payments even if the business is unprofitable. When you sell the property, you will pay Capital Gains Tax (CGT) on any gain you make on the sale.  

Limited company 

Mortgage interest is fully deductible for a limited company, unlike for personal ownership. 

A company can claim full-expensing or 50% first year allowance capital allowances on qualifying new plant and machinery bought on or after 1st April 2023. This means higher tax relief immediately compared to a sole trader using the accruals basis method of accounting. 

A company can make a section 198 election with the seller when buying second-hand properties to claim any remaining capital allowances. 

Renting out surplus space to third parties means that rental profits are subject to corporation tax (19–25% depending on company size). This means an additional layer of taxation applies when these profits are withdrawn as salary or dividends. 

Shares in your limited company may qualify for 100% Business Relief for inheritance tax, potentially shielding the property from inheritance tax if the conditions are met. 

The company will pay corporation tax on any gain when selling the commercial property, leading to an extra layer of tax 

What about stamp duty and VAT? 

In England and Northern Ireland, for both sole traders and limited companies, Stamp Duty Land Tax is payable on non-residential or mixed-use property over £150,000.  

In Scotland, Land and Buildings Transaction Tax is payable on non-residential properties over £150,000, and in Wales, Land Transaction Tax is payable on non-residential properties over £225,000.  

The sale of commercial property is usually exempt from VAT, unless: 

• The seller has opted to tax, or 
• The property is less than three years old.  

If you do have to pay VAT, you might be able to recover it when you sell the property, by opting to tax. 

Where can I get further support? 

At TaxAssist Accountants, we can guide you and your business through your options around your business property.  

If you need any help or assistance with your personal or corporate tax affairs, call us on 01494 718 777, or use our online enquiry form here. 

Last updated: 10th December 2025