Yes — buying a commercial property through a limited company does reduce corporation tax, but the saving comes from several separate reliefs working together rather than from a single deduction against the purchase price. Corporation tax is charged on profits at 19% up to £50,000 and 25% above £250,000, with marginal relief in between, so anything that lowers taxable profit lowers the bill. On a property purchase, the reliefs that do the heavy lifting are capital allowances on the fixtures inside the building, the Structures and Buildings Allowance on the shell, interest on any borrowing, and the ordinary running costs once you own it.
How the Reliefs Stack on One Purchase
The same £500,000 property can produce very different first-year tax relief depending on how the price splits between three components: the land, the building’s structural shell, and the fixtures and integral features inside it.
Land generates no capital allowances and no Structures and Buildings Allowance. The shell attracts the SBA at a flat 3% a year. Fixtures and integral features are where the fast money is: qualifying items can attract 100% relief in the year of purchase. That is why the split matters so much, and why a surveyor’s apportionment of the purchase price is close to essential.
Because relief is spread across different mechanisms with different speeds, the useful question is not “how much tax will I save?” but “which pound of my purchase price qualifies for which relief, and when do I get it?”
Capital Allowances on Fixtures and Integral Features
The most powerful relief on a property purchase sits in the plant and machinery inside the building. Under the Capital Allowances Act 2001, plant and machinery in a commercial context covers items like electrical wiring, heating systems, lifts, and fitted kitchens.
Section 33A of the Act singles out a category called “integral features” that always qualifies, regardless of what the building is used for:
- Electrical systems, including lighting
- Cold water systems
- Heating, ventilation, and air conditioning systems, including any floor or ceiling that forms part of the system
- Lifts, escalators, and moving walkways
- External solar shading
In a typical office purchase, integral features can represent 15–30% of the building’s value. That share is carved out of the “structure” for tax purposes even though the items are permanently attached.
Full Expensing and the Annual Investment Allowance
Companies have two routes to 100% first-year relief on qualifying plant and machinery. The Annual Investment Allowance lets you deduct the full cost of qualifying items in the year of purchase, up to £1,000,000. For most small and medium-sized businesses, that cap comfortably covers all the fixtures in a single acquisition.
Full expensing provides 100% first-year relief on main-rate plant and machinery with no monetary cap, and is available only to companies. Integral features sit in the special rate category, where full expensing gives 50% rather than 100% in year one. In practice, if the £1,000,000 AIA covers everything, the distinction rarely matters, because AIA can be pointed at the special-rate items first.
Anything not relieved in year one goes into a capital allowances pool and is written down on a reducing-balance basis: 18% a year for the main pool, 6% a year for special-rate items including integral features.
The Structures and Buildings Allowance on the Shell
Foundations, walls, floors, and permanent ceilings do not qualify for plant and machinery allowances. Instead they attract the Structures and Buildings Allowance, which gives relief at a flat 3% per year on a straight-line basis over 33 and one-third years.
The SBA applies to construction, renovation, or conversion costs for non-residential buildings where the construction contract was signed on or after 29 October 2018, and the building must first be used for a non-residential purpose. When you buy an existing commercial building, you inherit the remaining allowance period from the original construction; the clock does not reset on a change of ownership.
Several costs are explicitly outside the SBA: the land itself, stamp duty land tax on the purchase, planning permission fees, and landscaping. Professional fees tied to the construction work — architects and structural engineers — do qualify. The practical upshot is that a meaningful slice of your total outlay, particularly whatever is attributed to land, generates no SBA relief at all.
Interest on a Commercial Mortgage
If the company borrows to fund the purchase, interest payments are deductible from trading profits. Only the interest counts; repayments of principal are balance-sheet movements, not expenses. Lenders’ annual statements separate the two.
There is a cap in the background called the Corporate Interest Restriction, but it only starts to apply where a company or group has net interest and financing costs above £2,000,000 in a twelve-month period. A single-company business with one commercial mortgage is very unlikely to hit that threshold.
Running Costs Once You Own the Property
The day-to-day cost of operating a business property is fully deductible from trading profits in the year you incur it. Property insurance, business rates, utility bills, and ordinary repairs and maintenance all qualify. Repainting, fixing a leaking pipe, or replacing broken windows count as revenue expenditure because they restore the property to its existing condition rather than adding something new.
Every expense must be “wholly and exclusively” for the trade. Where a cost has a dual purpose, the whole amount can be disallowed unless a definite, identifiable business portion can be separated out. A property used 80% for trade and 20% for a director’s personal accommodation could support an 80% deduction on shared running costs, but only where the business share is genuinely separable.
Repairs Versus Improvements
The line between a deductible repair and a capital improvement catches a lot of companies out. Replacing a roof with equivalent materials is a repair. Replacing it with a higher-specification roof that adds insulation or an extra floor is an improvement and must be capitalised. The test is whether the work restores the property to its previous condition or makes it materially better, larger, or adapted for a different use.
Getting the classification wrong in either direction costs money. Treating an improvement as a repair risks HMRC disallowing the deduction on enquiry; treating a real repair as capital delays relief unnecessarily.
What Eats Into the Saving
Two upfront costs and one exit cost push the other way, and all three should be modelled before you commit.
Stamp Duty Land Tax
A commercial property purchase in England and Northern Ireland attracts SDLT on the purchase price at non-residential rates:
- 0% on the first £150,000
- 2% on the portion from £150,001 to £250,000
- 5% on anything above £250,000
SDLT on a £500,000 property comes to £14,500; on a £1,000,000 property, £39,500. It is a pure upfront cost and is specifically excluded from SBA relief. Scotland and Wales have their own equivalents with different rates.
VAT on the Purchase
Sales of commercial property are normally exempt from VAT, but the seller can “opt to tax,” which makes the sale standard-rated at 20%. A VAT-registered buyer using the property for taxable business activities can recover that VAT as input tax. A business making exempt supplies — some financial services, education, or healthcare — may not recover some or all of it, turning the VAT into a real cost. Check the property’s VAT status before exchange.
Corporation Tax When You Sell
Companies do not pay a separate capital gains tax. Any profit on the sale of the property is rolled into taxable profits and charged to corporation tax at the normal rate. A property bought for £400,000 and sold for £600,000 adds £200,000 to that year’s taxable profits.
Capital allowances already claimed can also be partially clawed back through a “balancing charge” on sale. If the disposal value of the fixtures exceeds the remaining balance in the capital allowances pool, the difference is added back to taxable profit. That reverses part of the earlier relief.
Documentation and the Section 198 Election
Claiming property reliefs takes more paperwork than most other deductions. You will need the purchase contract and completion statement, a surveyor’s valuation splitting the price between land, structure, and fixtures, itemised construction invoices for any building or fit-out work, mortgage statements showing interest paid, and — if you are buying an existing property — a signed Section 198 election.
The Section 198 election, made jointly by buyer and seller under the Capital Allowances Act 2001, fixes the seller’s disposal value and the buyer’s qualifying expenditure for the fixtures. Without it, the buyer can lose the ability to claim capital allowances on those fixtures at all. Agree it during the conveyancing process; it is much harder to negotiate after completion.
The land-versus-building split deserves particular care. Land attracts no capital allowances and no SBA, so the higher the proportion genuinely attributable to the building and its contents, the more relief you get. HMRC expects that split to reflect real market values, and an independent surveyor’s valuation is the best protection if the numbers are ever questioned.