Commercial or ‘non-residential’ property has specific tax rules, as well as exemptions and reliefs which you can apply for. Find out everything you need to know:
(6-minute read)
We will cover:
- HMRC rules and reliefs for stamp duty on commercial property
- How to navigate the stamp duty process
Rules and regulations
If you’re thinking about purchasing non-residential property, it’s important to understand the stamp duty regulations that apply.
In simple terms, you’ll have to pay Stamp Duty Land Tax (SDLT) on non-residential assets above the value of £150,000.
This applies to all types of commercial property, whether it’s a shop, office, or warehouse, among others.
The current system of SDLT rates is based on price thresholds.
This means you’ll only pay a percentage on the portion of the property price that falls within each band.
In this blog post, we’ll explore stamp duty on commercial property in detail and provide practical advice to help you navigate the process.
Rates exemplified
The amount of SDLT you’ll pay for non-residential property transactions is based on different thresholds and rates, as follows:
- Properties up to £150,000 have a 0% SDLT rate.
- Properties between £150,001 and £250,000 have a 2% SDLT rate.
- The remaining amount above £250,001 has a 5% SDLT rate.
For example, if you purchase freehold retail space for £320,000, you’ll pay:
- nothing on the first £150,000
- 2% on £150,001 to £250,000
- a further 5% on the amount above £250,001
This means you’ll pay a total of £5,500 in SDLT.
It’s also important to note that when you buy a new non-residential or mixed-use leasehold, you’ll pay SDLT on both the purchase price of the lease (lease premium) and the net present value (NPV) of the annual rent you pay.
The NPV is based on the total rent over the life of the lease, and you’ll only pay SDLT on the rent if the NPV is more than £150,000.
The percentage of stamp duty payable on the NPV is as follows:
- £0 to £150,000: 0%
- The portion from £150,001 to £5,000,000: 1%
- The portion above £5,000,001: 2%
Exemptions and reliefs
Many exemptions and reliefs are available for stamp duty that you may be eligible for depending on your circumstances.
If you’re a first-time buyer, there are specific SDLT reliefs available to you.
Developers or charities may claim relief when providing community amenities or buying property for charitable purposes.
You can find further guidance on SDLT reliefs on the HMRC website.
It’s important to note that even if no tax is due, you must complete an SDLT return to claim relief.
There are also various exemptions available, meaning you don’t have to pay SDLT or file a return.
For example, you don’t have to pay SDLT or file a return if:
- property is transferred to you because of divorce or dissolution of a civil partnership
- no money changes hands for a land or property transfer
- you buy a freehold property for less than £40,000
Similarly, if you buy a new or assigned lease of less than 7 years, as long as the amount you pay is less than the threshold of SDLT, you won’t have to pay SDLT.
You’re also exempt if you use alternative property financial arrangements, for example to comply with Sharia law.
Latest changes and how they affect you
Landlords and property investors can still benefit from the stamp duty cut that was announced in September 2022’s mini-budget.
This cut increased the threshold for property buyers from £125,000 to £250,000, meaning that they will pay a flat rate of two percent on all purchases up to £250,000.
This represents a saving, as previously they had to pay a stamp duty rate of three percent on properties bought for up to £125,000 and five percent on properties between £125,001 and £250,000.
However, it’s worth noting that this stamp duty cut is only temporary.
Stamp duty rates are set to return to normal from March 2025, meaning that landlords buying cheaper properties will no longer benefit from a discount.
To calculate how much tax you’d need to pay when buying a rental property, you can use the government’s stamp duty calculator.
Navigating the stamp duty process
Navigating the stamp duty process can be complex, but understanding the basics can help you make informed decisions and potentially reduce the amount of tax payable.
The amount of stamp duty payable on a commercial property is calculated based on the purchase price of the property and any land included in the sale.
It’s important to note that any additional items included in the transaction such as machinery, tools, and fixtures can reduce the amount on which stamp duty is payable.
If the inclusion of these additional items causes the commercial property price to fall within a lower tax band, any stamp duty payable will be charged at the lower percentage rate.
This means that it’s important to carefully consider the value and nature of any items included in the transaction to potentially reduce your stamp duty liability.
By understanding the rules and regulations surrounding stamp duty for commercial property transactions, you can navigate the process more confidently and potentially save money on taxes.
Submit forms and documentation
You can use HMRC’s calculator to know how much is due for stamp duty on commercial property.
Calculate stamp duty
You can use HMRC’s calculator to know how much is due for stamp duty on commercial property:
If you’re buying commercial property in England, Northern Ireland, or Wales above a certain price, you’ll be required to pay stamp duty within 30 days from the date of completion.
Failure to do so could result in a fine.
However, your solicitor or legal adviser should take care of this for you and ensure that you don’t miss the deadline.
It’s important to note that stamp duty is paid by everyone purchasing a residential or non-residential property in England, Northern Ireland, and Wales, including overseas buyers, corporate bodies, and non-natural persons.
This means that regardless of who you are or where you’re from, you’ll be required to pay stamp duty if you’re purchasing a property above a certain price threshold.
Ensuring compliance
Here are the key points you need to know to ensure compliance with SDLT regulations:
- SDLT applies to commercial property transactions, including leases.
- You must submit an SDLT return to HMRC and pay the tax due within 14 days of completion.
- The amount you pay depends on the purchase price or lease amount, as well as other factors.
- You can order the required SDLT forms online or by phone.
- Mistakes on your SDLT return can result in penalties. If HMRC finds any errors or missing information, they will ask you to provide the correct information on form SDLT8.
- If you pay the tax late, you’ll be charged interest from the day after you should have paid it until the day you pay it.
- You have one year from the filing date to amend your SDLT return and apply for a refund if necessary.
- You can apply for a refund of the higher rate part of your SDLT bill if you sell or give away your previous main home within 3 years of buying your new home.
- Non-UK residents may be able to apply for a refund of the 2% surcharge for certain transactions.
- You must register the property with HM Land Registry, and send the SDLT5 certificate and other SDLT forms by post or online to complete the process.
We hope this post helped clarify some doubts you may have had about stamp duty on commercial property.
If you require any assistance in finding out whether you’re eligible for a stamp duty refund, follow the steps below.
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