Stamp duty is a tax that is payable on the purchase of commercial property in the United Kingdom. In this article, we will provide a stamp duty calculator that can be used to determine the amount of stamp duty that is payable on a commercial property transaction which may serve as a commercial property investment.
We will also discuss how to claim back stamp duty in certain circumstances and explain what leasehold sales and transfers are. Whether you are a buyer or seller of commercial property, this information will help you understand your obligations and rights so you can stay on the right side of the law and avoid paying fines if you make a mistake as you pay stamp duty.
Is stamp duty payable on non-residential property?
Stamp duty is payable on a non-residential property in increasing amounts on anything over the value of £150,000. Even if the threshold is not met, you must send Stamp Duty and Land Tax form here to the government every tax year if you have made a purchase of land.
What types of property are considered to be non-residential?
In order for a property to be considered non-residential which would mean they are subject to commercial stamp duty and land tax, it would have to include one or multiple of the following points:
- The purchase of 6 or more residential properties in a single transaction
- Other land or property that is not part of a dwelling’s garden or grounds
- Property that is not suitable for living in
- Agricultural land that is part of a working farm or used for agricultural purposes
- Forests
- Commercial property, such as shops or offices
Is a holiday let considered a non-residential property
A furnished holiday let could be considered a commercial property. It depends on the nature of the use of the property. Most of the time they are not however and they are covered by a traditional buy-to-let mortgage. However, because of the range of reasons that could make a residential property be considered a commercial one, it may fall into this category.
As an example, if the property is a holiday let with a forest included with it as part of the land, you could end up paying the lower rate of stamp duty and land tax through the commercial stamp duty calculator.
What is the amount of stamp duty payable on commercial property transactions
To work out the amount of stamp duty that must be paid, first you must make sure the property isn’t a freehold sale. If you find it is, then you would have to follow slightly different rates which you can find in the below heading as you keep reading the article.
However, most commercial sales are freehold which means the property is paid at 0% tax up to £150,000, 2% tax up to £250,000 and 5% for anything above this number. This is completely different for residential properties where you end up paying up to 12% for stamp duty and land tax.
As a result, it is vital you class a commercial property as one. Also, there is information on how you can pay these lower rates even if you think your property would be classed as residential by reading our article on stamp duty land tax.
The stamp duty and land tax rates for freehold sales and transfers
Commercial property transactions must be paid using the below rates for stamp duty and land tax if it is a normal transaction and isn’t a leasehold sale. This table shows how stamp duty goes up in incremental amounts.
| Property transfer value | SDLT rate |
|---|---|
| Up to £150,000 | 0% |
| £150,001 to £250,000 | 2% |
| Anything above £250,001 | 5% |
A stamp duty and land tax example for a commercial sale
When looking at tables, it could be hard to understand what this may look like in a real life example. As a result, this example shows how a property could be sold for £400,000.
After the property was sold, you would pay nothing on the first £150,000, 2% on £150,001 to £250,000 and a further 5% on the amount above £250,001. To calculate the right tax for the 5% bracket you would do the calculation: £400,000 – £250,000 = £150,000 x 0.05% = £7,500.
And to calculate the right tax for the 2% tax band you would also do: £250,000 – £150,000 = £100,000 x 0.02% = £2,000. Adding together £7,500 and £2,000 would give you a total of £9,500.
You would then be able to submit your stamp duty tax return on the government website in order to pay it.
How do new leasehold sales and transfers work?
Leasehold sales and transfers are slightly different to freehold as not only is tax charged on the sale of a leasehold property but you also pay stamp duty on the annual rental income of the property. This is known as the net present value or the net present rent.
You can calculate these numbers separately and add them together at the end of the tax year in order to file your tax return. An easy way to do this is to use the government’s commercial stamp duty calculator which is available on their website here.
Table of how stamp duty is paid on the net present rent of a property
From the following table you can tell how the stamp duty rates slightly differ and are a lot lower compared to a freehold sale. However, a leasehold sale or transfer also takes into consideration the total rent of the property or the year which is why the categories for tax are a lot higher.
| Net present value of rent | SDLT rate |
|---|---|
| Up to £150,000 | 0% |
| £150,001 to £5,000,000 | 1% |
| Anything above £500,000,000 | 2% |
When is stamp duty on commercial property transactions due?
One thing a commercial stamp duty calculator will not tell you is when the transactions for the property are due. It is typically recommended stamp duty is submitted to HM Revenue and Customs (HMRC) within two weeks of the sale of the property completing.
This can be done by the landlord themself or by a solicitor acting on their behalf. Make sure they use a commercial stamp duty calculator rather than a residential one so you know that they are charging you the right amount of tax.
Are there any exemptions for stamp duty on commercial properties?
The most likely reason you could be exempt from stamp duty which a commercial stamp duty calculator will show you is if the property is valued under the minimum threshold to start paying tax (£150,00). Other than this, there could be stamp duty holidays which prevent a property owner from paying tax with the most recent one being in 2021.
Also, it could be that a property is able to be classed as a residential property and get away from stamp duty because the buyer is a first-time buyer. This is another reason for stamp duty exemption.
For leasehold properties, you will be exempt from stamp duty if the lease purchase is less than seven years old. For example, if you pay for a leasehold that has 9 years left, then you will have to pay for the stamp duty tax associated with this deal. However, if the lease has 6 years left, you will be exempt from all tax. Including the tax on the net present rent.
Finally, the UK government makes exemptions for people to not charge stamp duty and land tax if they don’t want to in order to comply with Sharia law if you follow the religion of Islam.
Is it possible to claim back stamp duty on a commercial property
There are usually a few reasons in order for stamp duty to be claimed back. Firstly, if the commercial stamp duty calculator was not used correctly and you overpaid on commercial stamp duty, this could be a good reason to apply for it back.
To start the application process for claiming back stamp duty on a commercial property, read the government website here where you will be able to apply online using the government gateway.
In closing
In conclusion, stamp duty is an important tax to be aware of if you are buying or selling commercial property in the UK. Our stamp duty calculator can help you determine the amount of stamp duty and land tax that is payable.
The first step would be to determine if the property is actually commercial, figure out if it is a leasehold or a freehold, find out what rate you have to pay based on the value of the property and then head over to the government website to submit a tax return.
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