Things to consider if you inherit a commercial property

Propertymark has issued guidance on what to do with a commercial property should you end up inheriting a commercial property.

Related topics:  Commercial,  Propertymark
Property | Reporter
19th June 2024
Commercial Property - 522
"Commercial properties can generate a great income if a family can agree upon a decent strategy to maximise their profits, but if anybody who inherits one would like to sell it, then it is worth speaking to a NAEA Propertymark-certified commercial agent"
- Michael Sears - NAEA Propertymark

When inheriting commercial property, especially at a younger age, many people have little awareness of what they should do with it. It can be a daunting task paying all the necessary taxes on it, making a profit on the property, or even selling it.

What is commercial property? And should you sell or rent your inherited commercial property?

Commercial properties range from shops, office buildings, or industrial units.

Being a commercial landlord can help generate a decent annual income, but you would also be responsible for maintaining it, and that responsibility includes checking the gas appliances, ensuring that the electrics work, and so much more.

It is worth deciding on what you want to do with an inherited commercial property as soon as possible because empty ones are regarded as a problem due to extortionate business rates, the risk of theft, squatters moving in, as well as other causes of concern.

Why you should use a NAEA Propertymark-certified commercial agent to sell your property

But if you want to sell the commercial property, it is worth speaking to a NAEA Propertymark-certified commercial agent about the best way of selling it.

This is because there is no regulation of property agents in England, which means they do not have to be qualified to sell homes, while solicitors and mortgage advisors involved in the buying and selling process need qualifications.

Any property agent who is a member of NAEA Propertymark is bound by a code of conduct and is appropriately qualified to trade as one, meaning they are willing to hold themselves to a higher standard than the law expects while being a member of the professional body.

Strategic planning

However, should you decide to use your commercial property to generate an income, if it is jointly owned by you and your family, then you would all have to specify what the short-term and long-term goals might be for it. But this also has the potential to cause huge disagreements between family members, so make sure you have fully documented and agreed on any new plans between all involved.

How changes in demand impact your commercial property

It is so important to closely consider this factor when strategically planning how you might run and generate income from inherited commercial property.

Due to the ever-increasing rise of online shopping and many other factors like business rates and parking charges, the face of the High Street has rapidly changed in the last 30 years or so.

It may be a challenge to retain ownership if demand for certain types of properties is becoming more fragmented or saturated, and such insight will help you determine if you want to rent or sell any inherited commercial property.

Taxes paid on commercial property

You must pay rental income tax on any profits you make if you transform your commercial property into a source of income.

Should the overall value of the deceased’s estate exceed £325,000, recipients may have to pay 40 per cent inheritance tax, unless they can reduce their tax bill by 50 or 100 per cent through Business Property Relief if the building continues to operate as a business.

Any Capital Gains Tax that needs to be paid on the property depends upon the date of death and if the property has increased in value between the death and its resale.

Landlords must also pay Capital Gains Tax on their property if they make a profit on it after selling it.

Other factors that affect how much Capital Gains Tax you pay depends on whether you give any gifts to a charity or spouse, or if a dependent relative resided in the property.

Commercial property tax relief might be available to you if the building is a business asset.

It is essential to speak with an accountant if you want help with any taxes that may need to be paid.

Michael Sears, NAEA Propertymark Commercial Advisory Panel Board member, said: “Though often received in tragic circumstances, inherited commercial property can present many opportunities for those who are later provided with the responsibility of managing one.

"Commercial properties can generate a great income if a family can agree upon a decent strategy to maximise their profits, but if anybody who inherits one would like to sell it, then it is worth speaking to a NAEA Propertymark-certified commercial agent that is appropriately qualified and held to a professional and higher standard than the law expects, to make sure that any sales comply with the law.”

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