It is a legal requirement to pay stamp duty land tax on a commercial property purchase. As the amount of stamp duty can significantly increase the purchase price of a property, you should factor this amount into the overall purchase when calculating the affordability.

What is stamp duty land tax?

Stamp duty land tax – SDLT – is a compulsory tax which must be paid by law on a property or land purchase which is above specified thresholds in England, Northern Ireland. The Scottish equivalent of stamp duty is Land and Buildings Transaction Tax (LBTT).

The buyer of the property is liable to pay the calculated amount of stamp duty, which will apply to both freehold and leasehold purchases.

Qualifying first time buyers became eligible to benefit from stamp duty relief in November 2017. If a residential property is valued at less than £300,000, the purchase is exempt from stamp duty.

As a general rule, HMRC must be notified of any property transactions, even if there is no requirement to pay stamp duty.

How is stamp duty land tax calculated?

The amount of stamp duty applicable to a commercial property is charged on the total purchase price. The figure is calculated based on the proportion of each tax band in which the property sits.

If a commercial property is valued at £185,000, the first £150,000 of this price is exempt from stamp duty, with the current 2% threshold applied to the remaining £35,000.

Are any commercial properties exempt from stamp duty land tax?

A commercial property which is valued below £150,000 is exempt from stamp duty. The limit is slightly lower for residential property, at £125,000.

Freehold stamp duty rates

The rates of stamp duty applicable to freehold commercial property are as follows:

Property purchase price	Stamp duty rate
Up to £150,000	0%
Between £150,001 and £250,000	2%
Over £250,000	5%

Leasehold stamp duty rates

If you purchase a leasehold commercial property, you are liable to pay stamp duty on both the lease purchase price and the value of the property’s annual rental yield.

Current leasehold stamp duty rates are as follows:

Rental value (non-residential/mixed use)	Stamp duty rate
Up to £150,000	0%
Between £150,001 and £5,000,000	1%
over £5,000,000	2%

Stamp duty land tax deductions

The amount of stamp duty applicable to a commercial property is calculated based on the purchase price of the property and any land included in the sale. Any additional items included in the transaction such as machinery, tools and fixtures will reduce the amount on which stamp duty is payable.

If a reduction causes the commercial property price to fall within a lower tax band, any stamp duty payable will be charged at the lower percentage rate.

If you require any advice or assistance regarding commercial property sales or purchases or any other aspect of commercial property management, get in touch and our expert team will be happy to help you.