Tax benefits of commercial property investment

Alongside strong long-term fundamentals, commercial property investment can provide a range of potential tax benefits. This presents a good opportunity to understand the range of tax benefits which might be applicable to your commercial property investments.

For investors taking a long-term view, the potential to pay less tax over time can provide immediate appeal to investors considering commercial property relative to other investment types.

• Capital gains realised on the sale of commercial property are generally non-taxable, while residential property investment is subject to the bright line test. Residential property investment acquired after March 2021 and sold within 10 years will be taxed on any capital gains. 
  
• Depreciation deductions for non-residential buildings were reinstated from 1 April 2020. This allows for a depreciation rate of either 1.5% straight line or 2% diminishing value, to be applied to commercial property. 
  
• Landlord fixtures and fittings of commercial properties can be depreciated. In comparison, residential fixtures only depreciate where they’re not physically attached to the building.
  
• Interest costs on commercial property ownership are tax deductible. With the exception of new residential property, interest deductibility has been removed for residential property acquired after March 2021 and these deductions are to be phased out by March 2025.
  
• Many unlisted property funds are PIE tax structured with a maximum tax rate of 28%, this can provide potential tax advantages for those investors on higher income tax rates of 33% or 39%.
  
• Any tax losses on commercial property investment are not ring fenced, so can be offset against other income. Residential property tax losses can only be offset against other residential property income. 

If you have questions relating to your Oyster investments, please reach out to the Oyster Investment Relations Team.

For more articles and updates, download the February 2023 Oyster Update Newsletter.