Real estate tax issues arise for all businesses, whether as owners or occupiers. Some of the issues which are more commonly encountered are summarised below. Further details can be found in our factsheet.
Trading versus investment
From a tax perspective, real estate may be required as trading stock, with the intention of realising a gain on resale, or as an investment i.e. primarily for the benefit of the rental income. There are significant differences in the tax treatment of these different activities.
Lease premiums
A proportion of a premium paid (or deemed to be paid) on the grant of a lease for a period of fifty years or less may be treated as income of the landlord and as an expense of the tenant.
Capital allowances
Complex provisions apply in relation to capital allowances on fixtures (i.e. plant or machinery which is, in law, part of the real estate). Allowances for expenditure on integral features, such as lifts and escalators, are given at the reduced rate of 10% per annum (8% per annum from April 2012).
VAT
The VAT treatment of UK real estate is particularly complex and can give rise to significant additional costs if mistakes are made.
For more information on the potential opportunities and pitfalls arising in connection with the taxation of real estate and real estate transactions, please contact Philip Parr, Robert Facer or your nearest Moore Stephens business tax adviser.