STAMP DUTY LAND TAX ON COMMERCIAL PROPERTY

Stamp duty land tax liability on commercial property purchases is calculated on an incremental basis and an assessment of the broken down figure of the total value of the property.

There is:

-0% stamp duty liability on the first £150,000 of the purchase price; and then
-2% liability on the next £100,000; and then
-5% liability on the remaining value above £250,000.

To put this in context; stamp duty liability for the purchase of a property valued at £500,000 would be £14,500 (i.e. the first £150k would be zero rated, the next £100k is taxed at 2% (£2,000) and the remaining £250,000 would be taxed at 5% (£12,500).

Stamp duty land tax on taking the lease of a commercial property is calculated in a different way and assessed on the premium payable (based on the calculation for a purchase of commercial property) and the value of rent payable over the term of the lease, known as the net present value (NPV). If the term of the lease is longer than 5 years, the Inland Revenue will work out the amount of stamp duty land tax due by taking the highest rent payable in the first 5 years. It will then apply that amount to each year for the rest of the term. The stamp duty land tax figures for leases is established by the Inland Revenue using a formulaic calculation. An on line calculation to work out this figure is available on the Inland Revenue’s website.

Please be aware:

When the Inland Revenue calculate stamp duty land tax on a purchase price/ lease rent they include any VAT payable in that calculation.
If more than one property is acquired as part of a global arrangement then the Inland Revenue may consider this to be a linked-transaction in which case stamp duty land tax is payable on the value of all of the properties combined rather than on each individual property.

If a lease is granted for more than 5 years then you need to consider whether a further stamp duty land tax submission needs to be made after the 5th year should there be any increase in rent.

Failure to submit a stamp duty form to the Inland Revenue within 30 days of the date of completion of a purchase / letting will result in late filing penalties being incurred if the submission is made within 3 months after the filing date there is a fixed penalty of £100 to pay. If the submission is made more than 3 months after the filing date there is a fixed penalty of £200 to pay. If the SDLT return is not submitted within 12 months after the filing date a tax-based penalty as well as the fixed penalty will be charged by the Inland Revenue. The tax-based penalty can be up to the full amount of the tax due on the return.