Stamp duty on non-residential property
Stamp Duty Land Tax (SDLT) is a tax applied to the acquisition of land in England and Northern Ireland. In Wales this is the Land Transaction Tax and in Scotland it’s known as the Land and Buildings Transaction Tax.
If you’re considering buying commercial property - whether as an investor or an owner-occupier - it’s worth knowing what SDLT is and what you can expect to pay in stamp duty for a non-residential property.
When is stamp duty charged?
Stamp duty is charged on the sale of all commercial properties over a price paid or market value of £150,000 and it’s payable on acquisition. Below £150,000, no stamp duty is due.
Common types of non-residential properties that are liable for stamp duty include offices, industrial spaces, retail properties, leisure premises, healthcare settings, forests, agricultural land and property not suitable to be lived in (e.g. with a risk of structural collapse).
You need to pay stamp duty on all non-residential assets whether freehold, new or existing leasehold property. This also includes interests, rights and powers over land, other than exempt interests like licenses to use land and mortgages.
How is stamp duty calculated & what are the rates on commercial property?
It’s not particularly difficult to calculate SDLT for non-residential properties once you know the rates, but these do vary for freehold and leasehold properties (more on these shortly), and rates differ in Wales and Scotland.
Below is a breakdown of all the rates you might need to know. But if you’re in a rush you can do your own calculations using an online stamp duty calculator, such as this one provided by HMRC.
Freehold commercial SDLT rates (England and Northern Ireland)
Freehold non-residential stamp duty rates are based on property prices paid, including VAT.
Stamp duty rate per value of commercial property
Up to £150,000 = 0%
£150,000 - £250,000 = 2%
Above £250,000 = 5%
Let’s use an example to bring these numbers to life:
You’re buying an industrial factory property for £400,000.
So, the calculation would look like this:
0% x £150,000 = £0
2% x the next £100,000 = £2,000
5% x the remaining £150,000 = £7,500
Making the total stamp duty payable £9,500.
Leasehold commercial SDLT rates (England and Northern Ireland)
This is a little different from freehold commercial stamp duty because you pay the SDLT based on the purchase price of the lease (the lease premium) as well as the annual rent you’ll pay (the net present value). The amount you pay can also be affected by the length of the lease.
Stamp Duty Rate vs NVP (net present value) of rent payable
Up to £150,000 = 0%
£150,001-£5,000,000 = 1%
Above £5,000,000 = 2%
Freehold non-residential rates for Land and Buildings Transaction Tax in Scotland
These rates differ from SDLT in England and Northern Ireland but are similarly based on the price paid for the property.
LBTT rate vs commercial property price in Scotland
Up to £150,000 = 0%
£150,001 - £250,000 = 1%
Above £250,000 = 5%
Non-residential lease transaction rates for Land and Buildings Transaction Tax in Scotland
Land and Buildings Transaction Tax rates for renting or leasing are very close to leasehold commercial stamp duty in England and Northern Ireland, but the NPV threshold amounts differ. You should also note that if the average rent is at least £1,000 per year the nil rate band doesn’t apply.
NVP (net present value) of rent payable in Scotland vs LBTT rate
Up to £150,000 = 0%
£150,001-£2,000,000 = 1%
Above £2,000,000 = 2%
Freehold non-residential rates for Land Transaction Tax (LTT) in Wales
The rates in Wales differ again from those in England, Northern Ireland and Scotland.
NPV of rent payable in Wales vs LTT rates
Up to £225,000 = 0%
£225,001-£250,000 = 1%
£250,001-£1,000,000 = 5%
Over £1,000,000 = 6%
Non-residential property rent rates for Land Transaction Tax in Wales
In Wales the NPV threshold amounts are slightly different to those in England and Northern Ireland. It’s also worth noting that if you pay rent on the grant of a lease, the nil rate tax band may not apply to the lease premium.
Up to £225,000 = 0%
£225,001-£2,000,000 = 1%
Above £2,000,000 = 2%
After completing a purchase you have 30 days to pay your stamp duty. Your solicitor may do this for you, but it needs to be done to make sure you don’t miss the deadline and incur a fine.
How much do you need to invest in a commercial property?
If you’re thinking about buying a commercial property and you’d like some more clarification on exactly what it will cost you (as well as what returns you can expect), The UpCo can help. With over 20 years in the industry as non-residential property experts we can support you in finding, acquiring and managing the ideal premises for your business needs.
To chat about your situation and goals, give us a call on 0151 542 5000 or email us at hello@theupco.co.uk.
