HMRC Property statistics reveal the Commercial sector is still in trouble

Heather Powell, Head of Property said:

The commercial property sales in this report, while higher than those reported in November 2023, were 3% down compared to December 2023. Transactions in this sector are an indicator of confidence, and the low sales shows that it is still struggling.

High interest rates continue to impact directly on the amount investors are willing to invest in commercial properties. The restriction on the deduction of interest for companies is having a major impact on the net cash flows (rent, less all costs including tax) a commercial property can generate.

If a business has a £30 million loan and the interest is charged at 3% the annual bill for the borrower is £900,000 under the current rules the borrower can deduct all of this charge against the rental income in the year.

However, if a business has a £30 million loan and the interest is charged at 8% the annual bill for the borrower is £2,400,000 and only £2,000,000 can be deducted against the rental income in the year. £400,000 has to be paid by the investor, on which they can get no tax relief in the year of expenditure.

The £2m threshold was introduced when the base rate was 0.25%. The base rate is now 4.75%, a multiple of 19, and significantly more property investors, who provide the buildings from which UK Businesses operate, are being caught by this restriction.

She added:

If the Chancellor is serious about encouraging UK Businesses to grow increasing this threshold significantly should be at the top of the agenda for her March 2025 Statement. Implementing this would be a practical way to encourage, and enable, entrepreneurs to deliver growth.

Would you like to know more?

If you would like to discuss any of the above and how it impacts you, please speak to your usual Blick Rothenberg contact or Heather Powell using the form below.