COMMENT On 30 October, Rachel Reeves delivered the first Budget under the new Labour government.
Among the numerous announcements, one major change included the increase in capital gains tax on commercial property disposals. Commercial property disposals made on or after 30 October will increase for lower rate taxpayers from 10% to 18% and for higher rate taxpayers from 20% to 24%, bringing rates in line with residential property, which remain unchanged at 18% and 24% respectively.
Crucially, CGT realised on commercial property disposals made under unconditional but uncompleted contracts agreed before 30 October and completed after will be charged at the new CGT rates.
Changes to business asset disposal relief (previously called entrepreneurs’ relief) and investors’ relief, which provide CGT relief to entrepreneurs and investors in business remain. However, the government confirmed the rate of tax will increase from 10% to 14% for disposals made on or after 6 April 2025, and will then change from 14% to 18% for disposals made on or after 6 April 2026.
Opportunity knocks
Many investors looking to grow their portfolios, especially those that have waited for a more favourable time, will see this as an opportunity to snap up a few bargains, as some commercial property will be sold under market value.
Looking elsewhere, the chancellor’s statement unveiling the “Get Britain Working” campaign could signal a boost in employment levels and, in turn, accelerate demand for suitable office space or flexible workspace. Research from Rightmove’s Q3 2024 tracker revealed that demand for office space from investors is up by 28% compared with Q3 2023, while supply levels are up by 7%.
With higher numbers of people returning to work, and a lack of suitable office space in some areas, this presents an opportunity for investors to acquire underperforming office buildings and implement a retrofit strategy to bring them back to life, improving the space as well as improving the energy performance certificate.
Research from Proxima revealed that almost 50% of commercial property in London could be unlettable by 2027 if they don’t meet the government’s energy efficiency standards. Minimum energy efficiency standards require that rented commercial properties in England and Wales have a minimum EPC rating of E, and this will increase to a minimum rating of C in 2027 and B in 2030.
Promising outlook
Overall, the recent Budget delivered by Reeves was a promising one and further signals positive signs for the UK’s commercial property sector.
It is clear the Labour government is determined to support both the commercial and residential property market and will inevitably introduce further measures later down the line.
We are seeing a positive sentiment among commercial property investors, especially in London, and we will continue to grow our portfolio with new acquisitions of high-performing commercial buildings in London in line with our business strategy.
Byron Baciocchi is chief executive of Unica Capital
