Contrary to what you might think, Stamp Duty doesn’t just apply to residential properties; it’s also an important consideration for those buying or renting Commercial Property.
In her first article for the firm, Partner Sarah Heath outlines how stamp duty works for commercial property.
Is there stamp duty to pay on a commercial property?
Yes, Stamp Duty Land Tax (SDLT), often shortened to just ‘stamp duty’, is not only payable on residential properties but it also applies to commercial property. HMRC class property as either residential or non-residential.
The amount of Stamp Duty you pay depends on the type of property and the ‘value’ of the associated transaction. This may not be simply the purchase price paid.
How does stamp duty work on commercial property?
In England and Northern Ireland, you pay no stamp duty on the first £150,000 on a commercial property transaction.
Beyond that, you pay 2% on the next £100,000 and 5% on properties over £250,000.
For example, a £350,000 commercial property falls within the 3rd category, as it costs more than £250,000, and you would have to pay stamp duty at 5%.
In addition, a 3% surcharge can also be payable if you are a non-UK resident/foreign registered company.
Please be aware that stamp duty rates are often adjusted.
How much is stamp duty on commercial leases?
Where a commercial property is being rented, stamp duty is calculated based on the length of the lease, the amount of rent payable and if there was a premium paid for the lease.
You can use the Government’s Stamp Duty calculator to find out how much stamp duty you will be paying, here.
Be careful though, as the VAT treatment of the property may also affect the stamp duty payable.
Is stamp duty more for a commercial property?
Whether stamp duty is more expensive for commercial property than it is for residential property depends on the price.
For example, if your commercial property is between £150,001 and £250,000; you pay 2% stamp duty. But stamp duty isn’t applicable up to £250,000 on residential property.
5% stamp duty is payable on properties over £250,000 in both residential and commercial properties. However, residential homes worth between £250,001 and £1.5m attract 10% tax; with 12% payable on homes above £1.5m.
Commercial stamp duty is capped at 5%.
Read more about residential stamp duty rates here.
What are the stamp duty rates for buy-to-lets bought by companies?
The stamp duty rates for commercial buy-to-let properties are slightly higher than the usual rates.
- For properties worth £40,000 - £250,000, 3% stamp duty applies
- For properties worth £250,001 - £925,000, 8% stamp duty applies
- For properties worth £925,001 - £1,5000,000, 13% stamp duty applies
- For properties worth more than £1,5000,000, 15% stamp duty applies
Buy-to-let owners will also pay a 3% surcharge on top of basic stamp duty.
What commercial properties are exempt from stamp duty?
Other than properties under £150,000, there are a number of other exemptions:
- Commercial Properties acquired by a charity
- Properties bought by social landlords (read more about social housing here)
- Properties acquired through sale and leaseback
- Properties acquired by property investment funds, Crown employees, relocated employees or through a compulsory purchase order
How can I avoid stamp duty on commercial property?
If you aren’t exempt from paying, you may be eligible for one of the many stamp duty reliefs. These are as follows:
What is Multiple Dwellings Relief?
Multiple Dwellings Relief (MDR) may be available to you if you purchase more than one property as part of the same transaction.
MDR allows stamp duty rates to be applied to the average value of the properties, instead of the total purchase price.
Do limited companies pay stamp duty on commercial property?
Yes, limited companies do pay stamp duty on commercial property (of course, if the property is worth more than £150,000 and not exempt).
Do limited companies pay extra 3% stamp duty?
Yes but you will have to pay an extra 3% surcharge on top of the standard stamp duty applicable when buying residential property.
This surcharge was introduced to target property investors.
What other fees are there when buying a commercial property?
On top of stamp duty, there are some other fees that apply when buying a commercial property:
- Rent (where applicable)
- Repair and maintenance
- Energy costs
- Service charges
- Insurance payments
- Business rates
- Legal fees
At Frettens, we will always be up front with legal fees and there will be no hidden costs. You can contact us for a quote on 01202 499255.
Read our complete guide to buying commercial property here.
Related: A complete guide to commercial mortgages
Specialist Commercial Property Solicitors
Our bright Commercial Property Team have vast experience in buying, buying to let and renting commercial premises and would be happy to assist you.
We can provide tailored advice on your circumstances, including how to reduce your stamp duty, and assist you in all legal aspects of purchase.
You can call us on 01202 499255, or fill out the form at the top of this page, for a free initial appointment.
Comments