Stamp Duty Land Tax on Commercial Property

Stamp Duty Land Tax on Commercial Property

Stamp duty land tax liability needs to be considered by anyone acquiring a freehold or leasehold interest in a commercial property.

Currently stamp duty land tax for commercial property is payable at the following rates:

  • 0% - up to £150,000 of the purchase price
  • 2% -  on the next £100,000 (the portion from £150,001 to £250,000) of the purchase price; and then
  • 5% -  on the remaining balance of the purchase price over £250,000.

Therefore, by way of example, stamp duty liability for the purchase of a commercial freehold property valued at £500,000 would be £14,500 calculated as follows:

  • first £150k - 0%;
  • next £100k - 2% (£2,000);
  • and the remaining £250,000 balance -  5% (£12,500).

When acquiring a new commercial lease a different calculation is used to assess stamp duty land tax liability based on:

  1. the premium payable; and/or
  2. the value of the annual rent payable over the term of the lease, known as the net present value (NPV).

Where both a premium and rent are payable then the stamp duty land tax liability for each sum payable under a) and b) is calculated and then added together.

Stamp duty land tax on a lease premium is calculated on the same basis as shown above for a commercial freehold property purchase. However, stamp duty land tax on a lease rent / NPV is instead calculated using an online formulaic calculation assessed on the value of the annual rent over the first five years of the lease term. An online calculator is available on the government’s stamp duty land tax website.

www.tax.service.gov.uk/calculate-stamp-duty-land-tax

Where a lease is granted for more than 5 years and/or based on a rent calculated on turnover then a further stamp duty land tax submission may need to be made after the 5th year of the term should there be any increase in rent and so in such circumstances it is advised that you instruct an accountant / financial adviser to deal with any future return that will need to be made to the Inland Revenue.

It is important to remember that stamp duty land tax is payable on any VAT element of the price/premium or rent and if more than one property is acquired as part of a global arrangement then the Inland Revenue may consider this to be a linked-transaction in which case stamp duty land tax is payable on the value of all of the properties combined rather than on each individual property value.

The deadline for submitting a stamp duty land tax form (together with any payment due) to the Inland Revenue is within 14 days of the “effective date” being either the date of completion or if earlier the date that “substantial performance” of the transaction has taken place (“the filing date”). There is no clear definition of what constitutes substantial performance but early or continued occupation (under a lease) could both qualify. Therefore the parties should always consider carefully the implications of early access being granted to a property and/or back dating any lease commencement date.

A late filing penalty of £100 will be incurred if the stamp duty land tax submission is made within 3 months after the filing date, which increases to £200 if the submission is made more than 3 months after the filing date. A further penalty of 10% of the stamp duty land tax due (capped at £300) is payable if the stamp duty land tax submission is not made 12 months after the filing date, increasing to 20% for any further delay up to 24 months and 30% for a delay over 24 months. Additional interest will also be payable on any late payment based on the amount owned.

At Neves we will assist you in navigating your way through the complexities of commercial property transactions and recommend that you take specialist tax advice from an accountant or financial adviser at the early stages of any transaction so that you are fully aware of any stamp duty land tax liabilities from the out-set.

Contact our specialist Commercial Property team by calling 0330 0945 500, emailing info@nevesllp.co.uk or by complete our Online Contact Form and we'll get back to you.