Q&A - Can you explain Stamp Duty Land Tax on commercial property sales?

01/04/2013

Q: How does Stamp Duty Land Tax work in relation to buying and selling commercial property?

A:  Stamp Duty Land Tax (SDLT) is charged on property transactions involving both land with buildings and just land on its own. It is payable by the purchaser and is calculated as a percentage of the total purchase price.

The SDLT situation with commercial property is rather more complicated than with residential property. The rate is zero on property purchased for up to £150,000. The same zero rating applies to commercial leasehold land where the rent is less than £1,000. For commercial property sold between £150,000 and £250,000, and in the case of commercial leasehold land where rent is £1,000 or more, the rate is 1%. After that the rate is 3% for purchases between £250,000 and £500,000, and 4% over £500,000.

In certain circumstances involving non-residential property VAT is charged on the purchase price, at the current standard rate of 20%. In these instances SDLT is levied on the VAT inclusive figure so, for example, on a basic purchase price of £240,000 the price including VAT would be £288,000 and SDLT would be levied at 3% on top of that (£8,640), making a total purchase price of £296,640. ... hence the importance when purchasing commercial as distinct from residential property, of ascertaining whether or not the property is liable for VAT.

For completeness, where VAT is applicable and the particular property is leasehold rather than freehold VAT will be charged on the rent.  Where the purchaser is appropriately VAT registered it should be possible to reclaim the VAT but it may nevertheless be a cash-flow issue. The deadline for filing an SDLT Return with HM Revenue & Customs is 30 days after completion of the purchase transaction, and if tax is payable it is due within the same 30 day period.

Richard Lloyd

Richard Lloyd

Partner

Our Senior Partner and Head of the Property team in Oswestry

Iain Hall

Iain Hall

Senior Solicitor

Part of our Property team in Wrexham