The Commercial Property Buyer’s Tax Due Diligence Checklist

The Tax Checks You Should Make Before Exchange

When carrying out due diligence on a commercial property acquisition, buyers typically focus on legal issues, surveys, tenant covenants, financing arrangements, and title matters.

However, tax due diligence is often overlooked until after completion.

By then, valuable reliefs may have been lost, unexpected liabilities may have emerged, and opportunities to structure the transaction efficiently may no longer be available.

Whether you are purchasing an office, warehouse, retail unit, industrial premises, or mixed-use asset, undertaking tax due diligence before exchange can significantly improve the financial outcome of your investment.

This checklist highlights some of the key tax considerations commercial property buyers should review before committing to a transaction.

1. Have Capital Allowances Been Reviewed?

One of the most commonly overlooked opportunities in commercial property transactions is capital allowances.

Many commercial buildings contain substantial qualifying fixtures, including:

Heating systems
Air conditioning
Electrical installations
Lighting systems
Lifts
Security systems
Fire alarm systems
Data cabling

These assets may qualify for tax relief through capital allowances.

However, entitlement is governed by specific rules under the Capital Allowances Act 2001, and opportunities can be lost if they are not considered during the transaction process.

Buyers should establish:

Whether the seller has previously claimed capital allowances
Whether allowances have been pooled
Whether a Section 198 election will be required
Whether specialist advice should be obtained before completion

In some cases, failing to address these issues before exchange can permanently restrict future claims.

2. Is a Section 198 Election Required?

Where fixtures qualify for capital allowances, the buyer and seller may need to enter into a Section 198 election.

This election fixes the value of qualifying fixtures transferred as part of the sale.

Many investors are unaware that this issue exists until after completion, when it may be difficult or impossible to rectify.

A properly drafted election can help preserve valuable tax relief for the purchaser while providing certainty for both parties.

The election should be discussed during legal negotiations and not left until after completion.

3. Has VAT Been Considered?

Commercial property transactions can have significant VAT implications.

Buyers should establish:

Whether the seller has opted to tax the property
Whether VAT will be charged on the purchase price
Whether the transaction may qualify as a Transfer of a Going Concern (TOGC)
Whether VAT registration requirements need to be addressed before completion

A misunderstanding here can have substantial cashflow implications.

For example, a £2 million property purchase subject to VAT may create an additional £400,000 funding requirement at completion.

4. Are There SDLT Planning Opportunities?

Stamp Duty Land Tax (SDLT) can represent a significant acquisition cost.

Before exchange, buyers should review:

Whether the property is residential, commercial, or mixed-use
Whether any reliefs may apply
Whether VAT impacts the SDLT calculation
Whether multiple properties are involved

Early review can help ensure SDLT is calculated correctly and that any available reliefs are identified before submission.

5. What Is the EPC Rating?

Energy efficiency is becoming an increasingly important commercial consideration.

Under the Minimum Energy Efficiency Standards (MEES) regime, most commercial properties must achieve minimum EPC requirements before they can be legally let, unless an exemption applies.

Investors should review:

The current EPC rating
Potential upgrade costs
Future compliance risks
The impact on tenant demand and asset value

Properties with poor energy performance may require significant capital expenditure in the future.

6. Are Planned Refurbishments Being Structured Tax Efficiently?

Many investors acquire assets with the intention of undertaking refurbishment works.

Before commencing any project, consideration should be given to:

Repairs versus capital expenditure
Capital allowances opportunities
Structures and Buildings Allowance (SBA)
Timing of expenditure
Record-keeping requirements

Early planning can often improve the overall tax outcome of a refurbishment project.

7. Is the Ownership Structure Appropriate?

The way a property is acquired can significantly affect future tax liabilities.

Buyers should consider:

Personal ownership
Company ownership
Joint ventures
Pension structures
Group ownership arrangements

The most suitable structure will depend on factors including financing, future disposal plans, income extraction requirements, and inheritance considerations.

Specialist tax advice should be sought before exchange wherever possible.

8. Have Future Exit Strategies Been Considered?

Tax planning should not end at acquisition.

Investors should consider:

Potential disposal routes
Future redevelopment plans
Holding periods
Capital gains implications
Succession planning

Understanding the intended exit strategy can influence decisions made at acquisition stage.

9. Is Supporting Documentation Being Retained?

A surprising number of tax issues arise simply because documentation cannot be located years later.

Buyers should retain:

Completion statements
Purchase contracts
VAT documentation
Surveys
Capital allowances reports
Section 198 elections
Refurbishment records

Good record-keeping helps support future claims and reduces risk during any HMRC enquiries.

Conclusion

Commercial property due diligence extends far beyond legal title and building surveys.

Tax considerations can materially affect the return on investment, cashflow, and future value of an asset.

By addressing issues such as capital allowances, VAT, SDLT, EPC compliance, and refurbishment planning before exchange, buyers can avoid costly mistakes and place themselves in a stronger position from day one.

The most successful investors view tax due diligence as an essential part of the acquisition process, not an afterthought.

How CPA Tax Can Help

At CPA Tax, we work alongside investors, accountants, solicitors, and commercial property professionals to identify tax risks and opportunities before transactions complete.

Our team can assist with: