Commercial property tax for landlords works very differently from residential buy-to-let. Residential landlords are caught by the Section 24 finance-cost restriction; commercial landlords are not, and can still deduct their mortgage interest in full. In exchange, commercial letting brings its own set of taxes to manage: income or corporation tax on the rent, capital allowances on the fixtures, business rates, VAT, stamp duty on the way in, and capital gains tax on the way out.
This guide is the overview. It gives one authoritative, current explanation of each tax head for 2026/27, then links down to the page that owns the detail. The figures below were checked against legislation.gov.uk and gov.uk on the review date, so where you see a 14% writing-down allowance or a five-multiplier business rates system, that is current law, not a typo for the older figures many published guides still carry.
The six taxes commercial landlords pay at a glance
Six separate taxes touch a commercial letting business. The table below is the map; each row links to the section and the deeper guide that owns it.
| Tax | What it is | Headline 2026/27 position |
|---|---|---|
| Income or corporation tax | Tax on the rental profit | Individuals: 20/40/45% (22/42/47% from April 2027). Companies: 19% to 25%, no Section 24 restriction either way |
| Capital allowances | Relief for plant, machinery and integral features | AIA 100% to £1m; main pool 14%; special rate 6%; new 40% first-year allowance; full expensing for companies |
| Business rates | Local charge on non-domestic property | Five-multiplier system from 1 April 2026; landlord usually liable while empty |
| VAT | Charged on rent only if you opt to tax | Letting exempt by default; option to tax recovers input VAT but locks in for 20 years |
| SDLT | Tax on purchase price (and lease rent) | Non-residential bands 0% / 2% / 5%; no additional-dwellings surcharge |
| Capital gains tax | Tax on the gain when you sell | 18% / 24% for individuals (same as residential); £3,000 annual exemption |
Income tax on commercial rent
Rent from commercial property held in your own name is property income. It is pooled with your other income and taxed at marginal rates. For 2026/27 those rates are 20% on income between £12,571 and £50,270, 40% between £50,271 and £125,140, and 45% above £125,140. The personal allowance tapers away once total income passes £100,000.
The headline advantage over residential letting is that the Section 24 finance-cost restriction does not apply to commercial property. A residential landlord can only claim a 20% basic-rate tax credit on mortgage interest; a commercial landlord deducts the interest in full before arriving at taxable profit. For a higher-rate taxpayer, full deduction is worth roughly twice the residential credit on the same interest bill. The detail of why commercial escapes the restriction sits in our Section 24 and commercial property guide.
The April 2027 property income tax rates
From 6 April 2027, property income is taxed at its own rates, separate from earnings and savings. These rates are 22% basic, 42% higher and 47% additional, set by Finance Act 2026 sections 6 and 7 (the Act received Royal Assent on 18 March 2026, so this is enacted law, not a proposal). The new rates apply to property income arising in England, Wales and Northern Ireland; Scotland sets its own income tax rates and is outside this change.
Crucially, commercial rent held personally is property income, so the new property rates apply to commercial landlords in the same way as residential ones. Alongside the rate change, the Section 24 finance-cost reducer rises from 20% to 22% in step (Finance Act 2026 Schedule 1 substitutes the new property basic rate for the basic rate in ITTOIA 2005 ss.274AA and 274C), so residential landlords do not face a new wedge between the rate at which their profit is taxed and the rate at which their interest is relieved. Commercial landlords keep full interest deduction throughout. Verify the exact figures with the Finance Act 2026 section 7 text on legislation.gov.uk.
Corporation tax on company-owned commercial property
If a limited company owns the property, the rental profit is charged to corporation tax rather than income tax, and Section 24 does not arise for companies at all. The 2026/27 corporation tax structure has three figures:
- 19% small profits rate on profits up to £50,000;
- 25% main rate on profits above £250,000;
- an effective 26.5% rate on the slice of profit between £50,000 and £250,000, produced by marginal relief (CTA 2010 s.18B, with the standard fraction of 3/200 set under s.18).
A common error in older guides is to apply a flat 19% to a mid-sized profit. Take a company with £200,000 of rental profit. That figure sits inside the marginal-relief band, not below it. Marginal relief reduces the headline 25% charge using the formula (upper limit minus augmented profits) times the standard fraction. On £200,000 of profit (assuming no other augmented profits and one company), the relief is (£250,000 minus £200,000) times 3/200, which is £750. So the tax is £200,000 at 25% (£50,000) less £750 relief, giving £49,250, an effective rate of about 24.6% on the whole profit and 26.5% on the slice above £50,000. The old "£200,000 pays 19%, so £38,000" figure understates the bill by more than £11,000.
If you run a portfolio across several SPVs, watch the associated-companies rules. The £50,000 and £250,000 limits are divided by the number of associated companies plus one (CTA 2010 ss.18D and 18E), so five SPVs each share one-fifth of the bands and reach the 25% main rate far sooner. Most pure property-investment companies are also close investment-holding companies (s.18N), which are denied the small profits rate entirely and pay 25% throughout. Our corporation tax for property companies guide works the marginal-relief and associated-company arithmetic in full.
Capital allowances on commercial property
Capital allowances are the standout reason commercial property is taxed more generously than residential on the capital side. Residential dwellings are largely barred from claiming plant and machinery allowances by the dwelling-house restriction (CAA 2001 s.35), whereas commercial buildings can claim broadly on their plant, machinery and integral features. Qualifying items include heating and air-conditioning systems, electrical and lighting installations, lifts and escalators, fire and security systems, cold-water and sanitary fittings and fitted units.
The framework changed materially with Finance Act 2026, and many competitor guides have not caught up:
- Annual Investment Allowance: 100% relief on qualifying plant up to £1 million a year. The £1 million cap is permanent (CAA 2001 s.51A(5), made permanent by Finance (No. 2) Act 2023 s.8), so drop any "temporary" framing.
- Main-pool writing-down allowance: 14%, reduced from 18% by Finance Act 2026 s.28 (which substitutes the new figure into CAA 2001 s.56). It applies to chargeable periods from 1 April 2026 for companies and 6 April 2026 for income tax, with a blended day-by-day rate for periods that straddle the change.
- Special-rate pool: 6%, unchanged. Integral features (CAA 2001 s.33A) such as electrical systems, cold-water systems, heating and air-conditioning, lifts and external solar shading fall here.
- New 40% first-year allowance: on new and unused main-rate plant with expenditure from 1 January 2026 (Finance Act 2026 s.29, inserting CAA 2001 s.45U). The statute sets no incorporation test, so unincorporated landlords and partnerships can claim it; in practice it is the route for those who cannot use full expensing. Cars and second-hand assets are excluded.
- Full expensing: 100% first-year allowance, companies only (CAA 2001 s.45S), permanent, on new and unused main-rate plant. It is not available to individuals, and it does not cover assets bought for leasing.
- Structures and Buildings Allowance: 3% a year on qualifying construction costs incurred on or after 29 October 2018 (CAA 2001 s.270AA), provided you hold a valid allowance statement (s.270IA).
On a purchase of a second-hand commercial building, the fixtures within it are usually the biggest hidden allowance. To claim them you generally need a section 198 election agreed with the seller, the value pooled by the seller, and the election made within the two-year deadline (CAA 2001 ss.198 and 201). Miss that window and the allowances can be lost permanently. The mechanics are involved enough to need their own page: see our commercial property capital allowances guide, the section 198 fixtures election guide, and the full expensing for SPVs guide.
Business rates on commercial property
Commercial premises pay business rates rather than council tax. Your bill is the rateable value set by the Valuation Office Agency multiplied by the applicable multiplier. From 1 April 2026 England moved from the old two-multiplier system to a five-multiplier system, alongside a revaluation that reset rateable values:
| Multiplier (2026/27, England) | Rate per £ of rateable value | Applies to |
|---|---|---|
| Large property multiplier | 50.8p | Rateable value £500,000 or more (any sector) |
| Standard multiplier | 48p | Standard property, rateable value £51,000 to £499,999 |
| Small business multiplier | 43.2p | Standard property, rateable value below £51,000 |
| Retail, hospitality and leisure (RHL) | 43p | Qualifying RHL property, rateable value £51,000 to £499,999 |
| RHL lower multiplier | 38.2p | Qualifying RHL property, rateable value below £51,000 |
The lower retail, hospitality and leisure multipliers replace the temporary RHL rates relief that ran in earlier years. Whether your tenant qualifies for the RHL multipliers depends on how the premises are used.
For landlords the liability question matters most when a unit is empty. The occupier normally pays rates while in occupation; once a property falls vacant the landlord usually becomes liable. Empty-property relief gives three months of full relief for most commercial premises and six months for industrial and warehouse premises (three months plus a further three). Properties with a rateable value under £2,900 get ongoing relief while empty until they are reoccupied. After the relief period, full rates resume, which is why void planning is a real cost for commercial landlords. For council-tax-versus-rates basics see our business rates and council tax for landlords guide.
VAT on commercial property
Most commercial letting and most commercial sales are exempt from VAT by default. Exemption sounds helpful, but it blocks the landlord from recovering input VAT on costs such as refurbishment, professional fees and acquisition expenses. To recover that VAT a landlord can opt to tax the property under VATA 1994 Schedule 10. The option means charging 20% VAT on rent and on a future sale, in exchange for recovering input VAT on related costs.
The option to tax carries two structural consequences. First, it can make the property less attractive to VAT-exempt tenants such as banks, insurers and charities, who cannot recover the VAT you charge them. Second, once made and the cooling-off period passes, the option is generally irrevocable for 20 years, so it is a long-term decision, not a year-by-year one. Where a let property is sold as a going concern with tenants in place, the sale can be treated as a transfer of a going concern (TOGC) and fall outside VAT entirely, provided the buyer matches the seller's option to tax and the conditions are met.
VAT on commercial property is its own discipline. The depth lives across several focused guides: the option to tax mechanics, the 20-year lock, VAT recovery on professional fees and capital costs, the TOGC rules, and the residential-versus-commercial VAT decision framework.
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SDLT on buying commercial property
Stamp Duty Land Tax on a commercial or mixed-use purchase in England and Northern Ireland uses the non-residential bands, charged slice by slice (Finance Act 2003 s.55):
| Purchase price slice | SDLT rate |
|---|---|
| Up to £150,000 | 0% |
| £150,001 to £250,000 | 2% |
| Above £250,000 | 5% |
There is no 5% additional-dwellings surcharge and no 2% non-resident surcharge on commercial property: those apply only to residential purchases. A purchase of six or more dwellings in a single transaction is automatically treated as non-residential (FA 2003 s.116(7)), which can be a deliberate planning point for larger portfolio acquisitions. Taking a new commercial lease also triggers an SDLT charge on the net present value of the rent over the lease term, separate from any premium. In Scotland the equivalent tax is Land and Buildings Transaction Tax (LBTT), and in Wales it is Land Transaction Tax (LTT), each with its own non-residential bands.
Capital gains tax when you sell
When an individual sells commercial property, the gain is taxed at the same rates as residential property: 18% to the extent it falls within the unused basic-rate band, and 24% above it (TCGA 1992 s.1H, unified from 30 October 2024). The historic 10%/20% commercial CGT differential no longer exists. The annual exempt amount is £3,000 for 2026/27. Companies do not pay CGT; a company's gain is charged to corporation tax instead.
A persistent myth is that commercial property qualifies for Business Asset Disposal Relief (BADR) and a 10% rate. Two corrections. First, the BADR rate is no longer 10%: it rose to 14% from 6 April 2025 and to 18% from 6 April 2026, with a £1 million lifetime limit. Second, and more important, a let commercial property is an investment, not a trade, so it does not meet the BADR trading condition at all. BADR is generally unavailable to a commercial landlord; it only comes into play where the property is used in your own trade. For most landlords the disposal rate is the ordinary 18%/24%.
Two further points landlords miss. Capital allowances claimed during ownership reduce the CGT base cost on disposal (TCGA 1992 s.41), so generous allowances earlier can mean a larger gain later. And incorporation relief (TCGA 1992 s.162) can defer the gain when an unincorporated property business is transferred to a company, subject to its own conditions. The full commercial-versus-residential CGT picture, including the capital-allowances clawback, sits in our commercial versus residential CGT guide.
How to hold it: individual, company or pension fund
The ownership structure drives the income-side tax more than any other single choice. Holding personally keeps the rent in your hands directly but taxes it at up to 45% (rising to 47% on property income from April 2027). A limited company pays corporation tax on profit (often more favourable while you reinvest), but a second layer of tax applies when you extract the profit as dividends or salary. The decision turns on your marginal rate, how much rent you draw versus reinvest, your exit horizon, and the associated-company position across any SPVs. Our corporation tax versus income tax comparison models the trade-off for landlords.
There is a third route specific to commercial property: a SIPP or SSAS pension fund can hold commercial property directly. Rent received and gains on sale are free of tax inside the scheme, and the property sits outside your taxable estate in the usual way for registered pensions. Residential property is broadly barred from pensions by the taxable-property charge (FA 2004 Schedule 29A), but commercial is permitted, which makes the pension route one of the cleanest long-term holdings for commercial landlords who can fund it. The mechanics are in our SIPP and SSAS commercial property guide.
Records, Making Tax Digital and common mistakes
Commercial property needs careful records for every tax head above: rental income, all allowable expenses with invoices, capital expenditure split between revenue and capital, business-rates payments and empty periods, the dates of any option to tax, and VAT records where you have opted. Making Tax Digital for Income Tax is now live for landlords: it applies from 6 April 2026 to those with qualifying property and trading income over £50,000, from 6 April 2027 at £30,000, and from 6 April 2028 at £20,000, with quarterly digital updates required.
The mistakes that cost commercial landlords most are usually avoidable:
- Not pooling fixtures before a sale, so the buyer cannot claim and the value is lost to both sides.
- Missing the two-year section 198 election window on a property purchase.
- Using the old 18% writing-down allowance instead of the current 14% main-pool rate.
- Ignoring empty-property rates relief and the landlord's liability while a unit is vacant.
- Mis-applying Section 24 by restricting interest on commercial property that should be fully deductible.
Getting specialist advice
Commercial property tax is the interaction of six taxes, and the right answer on one head often depends on a choice made on another: opting to tax affects the SDLT and CGT position on sale, the ownership structure affects both the income-side rate and the capital-allowances route, and the timing of a disposal affects which CGT band and which allowances apply. A specialist property accountant brings the heads together into one plan. It is worth a conversation in particular when you are acquiring your first commercial property, considering incorporation or a pension purchase, or planning a significant disposal.