Do You Pay SDLT (“Stamp Duty”) on Commercial Property?

SDLT (referred to in this article as Stamp duty or Stamp Duty Land Tax) can be complex and many businesses are unaware that there is stamp duty land tax on commercial property which inevitably results in penalties. 

If you’re negotiating a commercial lease it’s essential that you understand what Stamp Duty is and whether it will affect you. This blog will answer all your questions like ‘Is there Stamp Duty on commercial property?’ and ‘How much is Stamp Duty?’.

What is Stamp Duty on commercial property? 

Stamp Duty Land Tax (SDLT) is a tax applied to the acquisition of land or the grant of a lease  in England and Northern Ireland. In Scotland they charge Land and Buildings Transaction Tax and Wales charges Land Transaction Tax, rather than SDLT. 

What is Stamp Duty Land Tax charged on?

SDLT is payable in England and Northern Ireland and is charged on land transactions according to the price they were paid for, any premiums paid, the rent that is payable or in some cases the market value. Land transactions are any acquisition of chargeable interests, such as:

• Freeholds and leases;
• Interests;
• Rights; and 
• Powers over land. 

It is complicated but there are some exempt interests for example, mortgages and licences to use land. 

Do you pay SDLT (“Stamp Duty”) on commercial property?

Yes, SDLT is payable on both residential and commercial properties. 

Commercial Stamp Duty Land Tax rates

The appropriate rates for SDLT can be found by clicking on this link

HMRC also have a calculator that you can use to work out your SDLT liability but please note that this is indicative only and you should always seek professional advice to correctly confirm the amount of SDLT payable. 

Please also note the following:

• If VAT is payable on the premium or rent then this is taken into consideration when calculating SDLT liability; and 
• If you are taking an assignment of a lease, SDLT will only be payable on the price you pay for the assignment. 

Do residential and commercial properties have the same rates of Stamp Duty Land Tax?

SDLT  isn’t the same for commercial and residential properties. Commercial property has different rates than residential property. 

Do you pay Stamp Duty Land Tax on commercial leases?

Landlords have no responsibility for stamp duty on commercial leases. Therefore the tenant of the commercial lease is responsible for calculating and paying SDLT.

SDLT may be payable on the following:

• Grant of a commercial lease;
• Assignment of a commercial lease;
• Variation of a commercial lease; and
• The surrender of a commercial lease.

It very much depends upon the circumstances of each matter and SDLT isn’t always payable for all commercial property transactions. 

How Is SDLT (“Stamp Duty”) Charged On The Rent For Commercial Leases?

Calculating commercial property Stamp Duty Land Tax can be complex. As a result, we recommend contacting a tax lawyer or accountant with extensive experience in SDLT for further guidance and support. 

SDLT rates for commercial leases can be found here but the following should also be noted:

• The ‘rent due’ is calculated on the first 5 years of rent payments. For leases lasting more than 5 years the ‘rent due’ is based on the highest amount paid over a 12 month period during the first 5 years. 
• Once the ‘rent due’ figure is determined the Net Present Value (NPV) of the lease is calculated and the amount of SDLT owed is based on this figure. 
• SDLT can also be applied to certain other payments made under the terms of a lease and can also be applied to ‘chargeable considerations’. This can include the tenant's obligations to carry out services or work on the property. 

When Does Stamp Duty Land Tax Need To Be Paid?

SDLT must be paid within 14 days of the ‘effective date’ of the transaction, which can be any of the following:

• The completion of the transaction;
• The moving in date; or
• When the main part of the transaction has taken place. 

What happens if I don’t pay Stamp Duty Land Tax in time?

If SDLT is due and has not been paid within the 14 days required, HMRC will issue a automatic fine of £100 if you are no more than 3 months late filing the return. The fine increases to £200 if you are more than 3 months late filing the return.

In addition to fines, you’ll also be charged interest which accrues at a daily rate and can be quite costly.

Are There Exemptions on paying Stamp Duty Land Tax for a Commercial Lease?

Yes there are a number of exemptions available but each case and each exemption is different and conditions have to be met. This is a complex area of law and we recommend you seek professional advice in relation to SDLT. 

Looking to negotiate the terms of a commercial property lease? Get in touch with Legal Clarity today to see how we can support you!