Commercial vs Residential Property CGT: Same Headline Rate, Different Reliefs and Mechanics

From 30 October 2024 (Autumn Budget 2024), the headline Capital Gains Tax rate for individuals is the same on commercial and residential property: 18 per cent and 24 per cent under TCGA 1992 s.1H. The historic 10 per cent / 20 per cent rate band for commercial gains has gone. The 'commercial CGT is lower' framing in older guidance is out of date.

The commercial vs residential distinction still matters, just on different axes. The real differentiators are now reliefs (Business Asset Disposal Relief, rollover relief, holdover relief), capital allowances and the clawback on disposal, pension-scheme ownership (SIPP and SSAS), the section 24 income-tax differential, and the ownership-structure choice. This page reframes the comparison around those mechanics.

The unified rate, post-30-October-2024

The Autumn Budget 2024 aligned non-residential chargeable gains for individuals to the residential rate band. The operative statute is TCGA 1992 s.1H: chargeable gains accruing in a tax year to an individual are charged at 18 per cent on the slice within the unused basic-rate income tax band and 24 per cent on the remainder. The same rate applies regardless of whether the property is residential, commercial, mixed-use or any other class. Gov.uk's published rate page at gov.uk/capital-gains-tax/rates confirms the unified position, verified live 2026-05-24.

Taxpayer	Property class	CGT rate 2026/27	Notes
Individual (basic-rate band capacity remaining)	Residential or commercial	18%	Same rate; rate stacking on income
Individual (higher-rate or additional)	Residential or commercial	24%	Same rate
Trustee or personal representative	Residential or commercial	24% throughout	No basic-rate slice
Individual disposing of business asset	Qualifying trading commercial	BADR rate: 14% to 5 April 2026, 18% from 6 April 2026	£1m lifetime limit; s.169H
Limited company	Residential or commercial	25% main CT rate	CIHC exclusion from small profits rate for most investment SPVs
Non-UK resident individual	Residential, commercial or indirect	18% / 24% (aligned)	60-day return for every disposal
SIPP or SSAS pension scheme	Commercial only (residential prohibited)	0% on scheme disposal	Tax crystallises on member benefit drawdown

The historic differential gave commercial gains a 4 to 6 percentage point rate advantage over residential. That advantage is gone for individual disposals from 30 October 2024. The arithmetic of the commercial vs residential investment decision now sits in reliefs, mechanics and structure choice, not in the headline rate.

Business Asset Disposal Relief, the genuinely-trading carve-out

BADR (formerly Entrepreneurs' Relief) under TCGA 1992 s.169H reduces the CGT rate on qualifying disposals to a preferential rate, with a £1m lifetime limit per individual. The rate is in transition:

• Disposals on or before 5 April 2025: 10 per cent
• Disposals from 6 April 2025 to 5 April 2026: 14 per cent
• Disposals from 6 April 2026 onwards: 18 per cent

Even at 18 per cent, BADR still saves 6 percentage points against the 24 per cent higher rate, and equals the 18 per cent basic-rate slice without depending on basic-rate band capacity. For a £1m qualifying gain, BADR saves £60,000 (£180,000 at BADR versus £240,000 at the standard higher rate).

The qualifying conditions are tight, particularly for property:

• Trading-asset requirement. The property must be used in a trade carried on by the disposing person, by their personal trading company, or by a partnership in which they hold at least 5 per cent. Pure rental investment is not trade. Pawson v HMRC [2013] UKUT 050 (TCC) is the leading case on the trading threshold for property; standard letting (passive rent collection) fails the test. Serviced accommodation may qualify where the level of services beyond passive letting is substantial (managed kitchen, daily cleaning, breakfast, concierge), but the bar is high.
• Two-year ownership requirement. The asset must have been held for at least two years before the disposal, and (for personal-company disposals) the disposer must have been an officer or employee of the company for that two-year period.
• £1m lifetime limit. BADR can be claimed multiple times across an individual's life, but the cumulative qualifying gain capped at £1m. Above the cap, the standard 18 per cent / 24 per cent rates apply.

For most landlords, BADR is unavailable: the let property is investment, not trade. The exceptions are narrow: owner-occupied trading premises (a shop owner selling the shop they trade from); pre-abolition FHL disposals (covered by the grandfathered FHL BADR regime in our FHL post-April-2025 grandfathered claims page); the rare serviced-accommodation operation that crosses the Pawson trading threshold.

Rollover relief, the trading-asset requirement that catches most landlords

Rollover relief under TCGA 1992 s.152 defers CGT by reinvesting proceeds from one business asset into another. The relief looks generous on the face of the statute: gain from disposal of asset A is rolled into the base cost of newly-acquired asset B, deferred until B is itself disposed of. In practice the trading-asset requirement excludes most landlords.

The conditions are:

• The old asset must be used in a trade carried on by the disposing person at the time of disposal
• The new asset must be acquired for use in a trade by the same person (or a personal trading company / partnership)
• Acquisition must happen within the window of one year before to three years after the disposal of the old asset
• The new asset must cost at least as much as the old asset's disposal proceeds (otherwise the rollover is partial)

The trading test is the showstopper for typical commercial landlords. A landlord selling one let commercial unit (investment) and buying another let commercial unit (investment) does not qualify. Both ends of the transaction are investment, not trade.

Where rollover does work: an owner-occupied office sold by a trading business and replaced by an owner-occupied factory; a shop owner moving locations; a Furnished Holiday Letting disposed of pre-6-April-2025 (under the grandfathered FHL regime); an owner-occupied agricultural building. The HMRC manual at CG60250 covers the trading-asset requirement in detail.

Detail on rollover for landlords specifically (including the narrow cases where it does apply) sits in our rollover relief for property landlords guide.

Capital allowances and the s.41 CGT clawback

Commercial property is eligible for capital allowances on plant and machinery (CAA 2001 Part 2), on integral features (CAA 2001 Chapter 10A), on fixtures (CAA 2001 Chapter 14, with the s.198 election allocating the price between buyer and seller), and on structures and buildings under the Structures and Buildings Allowance (CAA 2001 Part 2A, 3 per cent per year). Residential property allows none of these on the building itself, though residential rental property does allow some plant and machinery in the let areas.

The capital allowances reduce taxable rental profit during ownership. On disposal, two adjustments happen:

• Balancing adjustment under CAA 2001. The disposal value of qualifying assets is compared with the written-down value remaining in the pool. Where disposal value exceeds written-down value, a balancing charge brings the excess back into taxable profits. Where disposal value falls short, a balancing allowance gives a further deduction. The balancing adjustment is computed for each pool separately (main pool, special-rate pool, single-asset pools, SBA). Detail in our balancing allowance and balancing charge page.
• CGT base-cost adjustment under TCGA 1992 s.41. The net capital allowances claimed (after any balancing-adjustment recapture) reduce the CGT base cost of the property, increasing the chargeable gain on disposal. The mechanism prevents double relief: the same expenditure cannot reduce both income tax (through allowances) and CGT (through base cost) for the same period.

For SBA specifically, the legislation provides that SBA claimed during ownership reduces the CGT base cost dollar-for-dollar on disposal. This is the main reason SBA, despite providing a steady 3 per cent annual deduction during ownership, is often less generous after disposal than it looks. Detail in our SBA 3 per cent claim mechanics page.

The s.198 fixtures election that allocates the price of fixtures between buyer and seller at acquisition affects both sides' capital allowances pools and the eventual CGT base cost calculation. Getting the election right at acquisition is one of the highest-leverage moves on commercial property tax planning; getting it wrong can prevent the buyer from claiming any allowances at all. Detail in our commercial property fixtures s.198 election page.

SIPP and SSAS commercial property

Commercial property held in a registered pension scheme (SIPP or SSAS) is one of the cleanest tax planning angles on the commercial side, with no equivalent for residential. The framework is:

• Rental income exempt within the scheme. Rents paid into the SIPP or SSAS are not income-taxed; the pension scheme is a tax-exempt vehicle for income.
• Disposal exempt within the scheme. When the scheme sells the commercial property, the chargeable gain is not subject to corporation tax or CGT. The full disposal proceeds remain within the scheme.
• Tax crystallises on benefit drawdown. When the member draws pension benefits, those benefits are taxed under the standard pension income tax framework (typically 25 per cent tax-free lump sum and the remainder at the member's marginal rate, with the post-2024 lump-sum-allowance framework applying).
• Residential property is broadly prohibited. FA 2004 Schedule 29A imposes the unauthorised payments charge on a SIPP or SSAS holding 'taxable property', which includes residential dwellings. The charge can reach 70 per cent of the value of the residential property and effectively prevents residential ownership in pension schemes.

The SIPP/SSAS commercial route is particularly attractive for an owner-occupied commercial property used by the member's trading company: the company pays rent to the SIPP (deductible against trading profits), the rent grows the pension pot tax-free, the property's eventual disposal is CT-free within the scheme, and tax only arises on drawdown. The detailed mechanics, including the FA 2004 Schedule 29A taxable-property definitions, sit in our SIPP/SSAS commercial property page.

Companies holding commercial property: CT at 25 per cent

A limited company holding commercial property pays corporation tax on disposal under CTA 2009. The main CT rate is 25 per cent from 1 April 2023. The small profits rate of 19 per cent and marginal relief apply only to small companies with augmented profits up to £50,000 / £250,000 respectively. Most property-investment SPVs do not qualify:

• Augmented profits include chargeable gains. A single commercial property sale typically takes augmented profits well above £250,000 even where ongoing rental profits are modest, pushing the company into the main rate.
• Associated-company aggregation. The £50,000 / £250,000 thresholds are divided by the number of associated companies in a group. SPVs in property-investment groups often have very low effective thresholds.
• Close Investment-Holding Company status. CTA 2010 s.18N excludes Close Investment-Holding Companies (CIHCs) from the small profits rate. Most pure property-investment SPVs are CIHCs because their main activity is investment, not trade. The exclusion removes the 19 per cent rate entirely; the company pays 25 per cent on all profits including chargeable gains.

The practical position is that a corporate commercial-property landlord pays 25 per cent CT on the gain. Older guidance presenting a blended 19 per cent / 25 per cent rate via the small profits rate is misleading for the typical property-investment SPV. The detail on CIHC status and its consequences sits in our BTL limited company complete guide.

Extracting the post-tax proceeds from the company is a separate question with its own tax implications (dividends, salary, Members' Voluntary Liquidation, intra-group restructuring). The detail on extraction is in our Wave 6 LtdCo extraction pages.

Worked example 1: BADR-eligible owner-occupied commercial sale

Daniel runs a sole-trader print shop from a freehold unit he bought in 2012 for £180,000. He uses the unit wholly for his print trade. In May 2027 he retires and sells the unit for £420,000 with £12,000 of disposal costs. He has no other capital gains in 2027/28 and is a higher-rate taxpayer (final-year trading income £62,000).

Gross gain: £420,000 − £12,000 − £180,000 = £228,000

The property has been used in Daniel's trade for more than two years and Daniel is disposing of it on cessation of his trade. The BADR conditions are met (TCGA 1992 s.169H qualifying business disposal on cessation under s.169I(2)(b)).

Less £3,000 AEA: £225,000 taxable

BADR rate (disposal in 2027/28, so from 6 April 2026 onwards): 18 per cent

CGT: £225,000 × 18% = £40,500

Without BADR, the same gain would have been taxed at 24 per cent for a higher-rate taxpayer: £225,000 × 24% = £54,000. BADR saves Daniel £13,500 on the disposal. The £225,000 sits comfortably below the £1m lifetime limit; Daniel can use the remaining limit on any future qualifying disposals.

Worked example 2: let commercial property, no BADR, no rollover

Same property as Example 1, but Daniel never traded from the unit. He has rented it to an arms-length tenant since 2012 at a market rent. He sells in May 2027 with the same £420,000 / £12,000 / £180,000 figures.

Gross gain: £228,000

Less £3,000 AEA: £225,000 taxable

BADR is not available (Daniel never used the property in a trade; passive rent collection is investment, not trade). Rollover relief is not available (the old asset is not used in a trade by Daniel). The standard rates apply.

Rate stacking: Daniel has £62,000 of income for 2027/28 (assume rental profits remaining). Basic-rate band of £50,270 is fully used. The entire £225,000 falls in the higher-rate band.

CGT: £225,000 × 24% = £54,000

The same property, the same disposal proceeds, but a different ownership use over the period. The £13,500 BADR saving in Example 1 disappears. The let-versus-owner-occupied distinction drives the difference; the headline rate is identical.

Worked example 3: commercial property held by an SPV with capital allowances clawback

Riverbank Property Limited (a UK-resident SPV) acquired a freehold trading estate in 2018 for £1,200,000, including £180,000 of qualifying plant and machinery and £80,000 of integral features. The company elected to allocate the price under TCGA 1992 s.198 with the seller and has claimed Annual Investment Allowance (AIA) and writing-down allowances during ownership. Cumulative capital allowances claimed by 2027: £230,000 net of any prior balancing adjustments. The company has also claimed Structures and Buildings Allowance at 3 per cent per year on £900,000 of qualifying expenditure (2018 to 2027, 9 years × 3% × £900,000 = £243,000 of SBA claimed).

The company sells the property in March 2027 for £1,650,000 with £45,000 of disposal costs. The buyer agrees a s.198 election allocating £210,000 to plant and machinery + integral features at sale (current-day value of those assets).

Balancing adjustment on plant and machinery + integral features:

• Tax written-down value remaining in the pool by 2027: approximately £30,000 (after 9 years of writing-down allowances and £230,000 of claims net against the original £260,000)
• s.198 election disposal value: £210,000
• Balancing charge: £210,000 − £30,000 = £180,000 brought back into taxable trading profits in 2027

CGT computation (with s.41 adjustment):

• Gross gain on the property: £1,650,000 − £45,000 − £1,200,000 = £405,000
• s.41 adjustment: CGT base cost reduced by capital allowances claimed during ownership (£230,000 net allowances on the plant/machinery + integral features, plus the SBA position)
• SBA-specific base-cost reduction: £243,000
• Adjusted gain: £405,000 + £230,000 (plant + machinery base cost adjustment) + £243,000 (SBA adjustment) = £878,000
• Plus balancing charge separately taxed at CT rates (£180,000 × 25% = £45,000 of CT in 2027)

CGT on the adjusted gain: £878,000 × 25% = £219,500

Total CT exposure on the disposal year: £219,500 (CGT) + £45,000 (balancing charge) = £264,500

The capital allowances claimed during ownership saved CT during the holding period (each year's allowance reduced taxable rental profit at 25 per cent), but the s.41 adjustment plus the balancing charge clawback materially affects the post-disposal arithmetic. The interaction is one reason why capital allowances on commercial property need to be modelled across the full ownership-and-disposal cycle, not just claimed annually in isolation. The wider mechanics sit in our W6 Bucket C cluster.

Worked example 4: mixed-use property apportionment

Veronique owns a freehold building (acquired 2014 for £680,000) with a retail unit on the ground floor (let to a high street tenant; 45 per cent of value and floor area) and two residential flats above (let on separate ASTs; 55 per cent of value and floor area). She sells the building in October 2026 for £980,000 with £24,000 of disposal costs. Veronique is a higher-rate taxpayer; no BADR available (none of the property is used in her own trade).

Gross gain: £980,000 − £24,000 − £680,000 = £276,000

Apportionment (45 per cent commercial, 55 per cent residential):

• Commercial portion: £276,000 × 45% = £124,200
• Residential portion: £276,000 × 55% = £151,800

Rate application post-30-October-2024: Both portions are taxed at 18 per cent / 24 per cent under TCGA s.1H. The rate apportionment is no longer the focus; the apportionment matters for relief availability (no BADR or rollover for either portion in this scenario; capital allowances would have been available historically on the commercial portion only).

Less £3,000 AEA (applied to the aggregate): £273,000 taxable

Veronique's other 2026/27 income: £75,000 (higher-rate throughout)

CGT: £273,000 × 24% = £65,520

Under the pre-30-October-2024 framework, the commercial portion would have been taxed at 20 per cent (£124,200 × 20% = £24,840) versus the residential at 24 per cent (£151,800 × 24% = £36,432), with the mixed-use giving a £61,272 total at the apportioned old rates. Post-30-October-2024 the figure is £65,520 (£273,000 × 24%) less £3,000 AEA at 24% saving = £65,520. The commercial-side rate advantage is approximately £4,000 of additional tax post-alignment, which the source page would have presented (in its old framing) as a saving on commercial. That saving is now £0; the unified-rate position eliminates the rate-only differential.

Where does the commercial vs residential decision still favour commercial post-30-October-2024?

The rate alignment does not make commercial and residential equivalent. The differentials sit in the layers below the headline rate:

• BADR availability. Genuinely-trading commercial gets BADR; let residential never does. For an owner-occupied commercial premises, BADR at 18 per cent (from 6 April 2026) versus the 24 per cent standard rate saves 6 percentage points on up to £1m of gain.
• Rollover relief availability. Trading commercial may roll into another trading asset under s.152; residential cannot (not used in trade).
• Section 24 mortgage interest restriction. Section 24 applies to residential landlords (basic-rate-restriction on finance costs) but not commercial. Over a long ownership period, the section 24 differential typically dwarfs the CGT-side differences for highly-geared individual residential portfolios.
• Capital allowances during ownership. Commercial allowances reduce income tax annually; residential rental does not have building-level allowances. The s.41 clawback on disposal is real but typically smaller than the cumulative income-tax saving.
• SIPP/SSAS commercial pension ownership. Commercial property in a registered pension scheme is exempt from CT on disposal; residential is broadly prohibited.
• BPR availability for IHT. Genuinely-trading commercial may qualify for Business Property Relief on death; passive rental does not under the Pawson v HMRC line. The post-6 April 2026 £2.5m combined BPR/APR cap also affects the IHT-side calculation.
• Furnished Holiday Lettings, pre-abolition. FHL was historically the residential category that crossed into commercial-style treatment (BADR + capital allowances + no s.24 restriction). The regime ended 6 April 2025; disposals after that date follow standard residential rules.

The post-30-October-2024 framework therefore rewards the choice between commercial and residential more on the operational and structural features than on the headline rate. An investor primarily focused on after-tax cashflow during ownership (where section 24 dominates) often still favours commercial. An investor focused on disposal-time relief availability (BADR, rollover) favours commercial only where the use is genuinely trading. An investor focused on pension-based wealth building strongly favours commercial (SIPP/SSAS). An investor focused on family-succession IHT planning favours commercial only where the BPR Pawson threshold is met.

The 60-day reporting asymmetry

The 60-day CGT on UK property reporting service applies only to disposals of UK residential property by UK-resident individuals where CGT is due. UK residents disposing of UK commercial property report only on Self Assessment, with payment due by 31 January following the tax year. Non-resident individuals, by contrast, file the 60-day return for every UK land disposal (residential, commercial or indirect) regardless of whether tax is due. The detailed mechanics are in our CGT payment deadlines guide and our non-resident CGT page respectively.

Records to keep

For commercial property disposals the records overlap with residential but with several commercial-specific additions:

• Original purchase contract, completion statement, SDLT (or LTT, or LBTT) return and receipt
• Purchase legal invoices and survey costs
• All capital improvement invoices with descriptions of work sufficient to evidence capital versus revenue
• Capital allowances computations across the period of ownership: plant and machinery pool additions and disposals, integral features, fixtures elections under CAA 2001 s.198, SBA claims year by year, balancing-adjustment workings
• Evidence of any trading-asset use (for BADR or rollover purposes): trading accounts, employment contracts where the property is used by a personal company, evidence of the two-year qualifying period
• Evidence of any pension-scheme ownership transitions (SIPP/SSAS in-specie transfers, rent payments to the scheme during ownership)
• Sale contract, completion statement, sale legal and surveyor invoices
• Mixed-use apportionment workings where applicable (RICS valuation, floor-area calculations, rent allocation between commercial and residential components)
• The CGT computation worksheet linking everything together, with the s.41 base-cost adjustment workings

HMRC's standard retention period for business taxpayers is five years and 10 months from the end of the tax year of disposal. In practice retain for at least six years, longer where capital allowances or BADR/rollover positions may need long-term evidence.

Where this fits in our wider CGT and capital allowances coverage

This page is the commercial vs residential comparator. The depth pages on each mechanic sit elsewhere:

• Headline rates: CGT rates on residential property 2026/27 (the unified rate explainer)
• Calculation walkthrough: CGT calculation step-by-step
• 60-day reporting: CGT payment deadlines
• Non-resident reporting: non-resident CGT
• Rollover relief depth: rollover relief for property landlords
• PRR mechanics: PRR for landlords
• Capital allowances mechanics:
  • Balancing allowance and balancing charge on disposal
  • SBA 3 per cent claim mechanics
  • 50 per cent first-year allowance for commercial property SPVs
  • Commercial property fixtures s.198 election
  • FHL post-April-2025 grandfathered claims
• Trust holdover blocking: settlor-interested trust holdover blocking
• Pension scheme angle: SIPP/SSAS commercial property
• VAT on commercial: VAT option to tax on commercial property
• Income tax differential: Section 24 finance cost restriction guide (residential only)
• Corporate structure: BTL limited company complete guide