Stamp Duty on commercial property

Categories: commercial mortgages | sdlt | guides

Stamp Duty Land Tax (SDLT) or simply “stamp duty”, is a tax charged on the purchase of commercial property and land in England and Northern Ireland.

You are required, by law, to pay this tax on commercial property purchases above £150,000, and that applies for leaseholds and freeholds, but at different rates. If the property you buy is less than £150,000 there is no stamp duty to pay.

You must still send an SDLT return for most commercial properties under £150,000 in value, so HMRC are aware that a transaction has taken place, but there are some exemptions. See the “FAQs” section at the bottom of this page.

In Scotland there is a similar tax called Land and Buildings Transaction Tax and in Wales it is called Land Transaction Tax.

If you are buying commercial property in England and Northern Ireland, it’s important to stay on top of the rules around tax. In the following guide, we’ll help you to do just that, covering topics such as:

Contents

Which properties are considered commercial?

For the purposes of SDLT in England and Northern Ireland, a commercial property is not simply one that conducts business and doesn’t house tenants. The definition is a little broader than that and encompasses all of the following:

  • Offices and shops
  • Land that is not part of a dwelling’s garden/grounds
  • Land designated for agricultural use
  • Warehouses and factories
  • Garages and workshops
  • Forests
  • 6+ residential dwellings purchased as part of a single transaction
  • Mixed-used property (such as a flat connected to a retail space)

The Scottish government give a similar definition of non-residential and mixed use land and property for LBTT applicable in Scotland:

  • commercial property, for example shops or offices
  • property that isn’t suitable to be lived in
  • forests
  • agricultural land that’s part of a working farm or used for agricultural reasons
  • 6 or more residential properties bought in a single transaction

The following building types also fall under the non-residential (commercial) category for tax:

  • homes or other institution providing residential accommodation for children
  • halls of residence for students in further or higher education
  • homes or other institution for persons in need of personal care due to age, disability, drug or alcohol dependency or mental health conditions
  • hospitals or hospices
  • prisons or similar establishment
  • a hotel or inn or similar establishment

The Welsh government again uses a slightly different explanation for non-residential and mixed use property, but by and large the definition is the same where it comes to their LTT:

“Non-residential means any land and buildings that are not residential property.

“Non-residential property includes:

  • shops
  • offices
  • agricultural land (working farmland)
  • bare land
  • Non-residential land or property is likely to have been commercially exploited by machinery or used for business.

“A ‘mixed’ property (also known as mixed use) has both residential and non-residential elements.

“For example:

  • a building which contains a shop and a flat
  • a house with a doctor’s surgery
  • a working farm with land that’s been farmed for commercial gain

When are holiday lets considered commercial?

Holiday lets are not considered commercial properties when it comes to mortgage borrowing. This is because a holiday let house could easily be resold as a conventional residential home if it came to repossession.

In the eyes of mortgage lenders, commercial properties are premises which are not homes, like an office, shop or warehouse (or if they can be lived in, are on a larger scale, like a hotel).

Stamp duty on holiday lets (or short term lets like AirBnB’s) is charged at the residential rate, plus the same 3% surcharge applicable to all buy to let transactions.

The additional 3% surcharge applies if you’re buying a property worth £40,000 or more and you already own, or part own property, worth £40,000. This is essentially a tax on second homes, and it applies even if the purchase is less than £250,000.

The only exception is for properties worth less than £40,000, as well as properties that are moveable, such as caravans, mobile homes, or houseboats that have not been sufficiently fixed to the land to make it immobile.

There may be unique circumstances where SDLT is payable on land or property that you may not anticipate, so always seek professional legal advice.

The current stamp duty rates for holiday let properties (as of February 2024) are as follows:

Tax band

Residential rate

Surcharge

Total rate charged

Up to £250,000

0%

3%

3%

The next £675,000 (the portion from £250,001 to £925,000)

5%

3%

8%

The next £575,000 (the portion from £925,001 to £1.5 million)

10%

3%

13%

The remaining amount (the portion above £1.5 million)

12%

3%

15%

Other types of tax breaks are available on properties that qualify as furnished holiday lets (FHLs) in the UK or EEA, but stamp duty, as described above, still applies.

From 1st April 2023, to qualify as an FHL in the UK, a holiday let must be:

  • Furnished
  • Available to rent for at least 210 days a year (140 days on or before the tax year 2011-2012)
  • Actually let for at least 105 days a year (70 days for the tax year 2011 to 2012 and earlier). Days where it is let to friends or relatives for a discount or no cost cannot be included in this total.
  • Planned long term lettings of 31 days duration or more do not count within the lettings for the property (unless a holidaymaker had to stay longer for unforeseen health reasons or flight delays)
  • Used for commercial reasons (intended to make a profit)

From 1st April, to qualify as an FHL in Wales, the availability of and actual days rented differ:

  • Available to let for at least 252 days in the previous 12 month period
  • Actually let for at least 182 days in the previous 12 month period

The Scottish government references holiday lets as being:

  • Available to let for 140 days a year
  • Actually let for 70 days or more in a financial year

How does commercial stamp duty differ vs residential stamp duty?

Residential stamp duty doesn’t apply to purchases below £250,000 while for commercial stamp duty that figure is lower, at £150,000. However, residential stamp duty rates are higher, with an upper limit of 12%, compared to 5% for commercial properties.

Stamp duty rates for commercial properties

Stamp duty is charged on commercial property sales in England and Northern Ireland, but how much do you pay on commercial property? Well, it depends on the value of the asset and whether it is freehold or leasehold. Commercial stamp duty rates are:

  • Up to £150,000 = 0%
  • £150,001 to £250,000 = 2%
  • £250,001 and over = 5%

Rates accurate as of February 2024

To calculate how much stamp duty you will pay, where your purchase exceeds £150,001, an example is provided below:

Commercial property value = £350,000

You pay:

2% on the amount £150,001 - £250,000 = £2,000
5% on the amount over £250,001 = £5,000
Total Stamp Duty payable = £7,000

If the sale is for a commercial property worth less than £150,000, you won’t be charged stamp duty. However, you may still need to tell the HMRC about the transaction (there are a few exceptions, see the FAQ below for more information).

Need help calculating what you will owe? Use our commercial property Stamp Duty calculator.

Do not forget stamp duty on commercial property leases

The above rates apply to freehold purchases, which means you own the property and/or land. The rates are different for non-residential leaseholds and mixed-used leaseholds.

For leasehold (you only own the property for a given period of time, after which it reverts to the landlord) sales and transfers, you must calculate the following (bearing in mind that you only pay SDLT on the lease price where you are buying an existing lease):

  • The cost of the lease (the “lease premium”).
  • The value of the rent (the “Net Present Value”) over the life of the lease, where the NPV is less than £150,000.

These are calculated separately, the total of both sums is the amount you pay.

Land and Buildings Transactions Tax rates for commercial properties

For freehold commercial land or property in Scotland, the following Land and Buildings Transaction Tax (LBTT) rates apply:

  • Up to £150,000 = 0%
  • £150,001 to £250,000 = 1%
  • £250,001 and over = 5%

The difference is that the middle threshold from £150,001 to £250,000 is 1% lower than in England and Northern Ireland.

Use our free tool to calculate commercial property LBTT.

Land Transaction Tax rates for commercial properties

For freehold commercial land or property in Wales, the following Land Transaction Tax (LTT) rates apply:

  • Up to £225,000 = 0%
  • £225,001 to £250,000 = 1%
  • £250,001 to £1,000,000 = 5%
  • Over £1,000,000 = 6%

So the starting threshold is higher than in England, Northern Ireland and Scotland, but there is an extra, higher rate applied for properties in excess of £1,000,000, which other UK countries do not have.

LTT is calculated differently for leasehold property. Non-residential rent rates are charged on the rent part of the lease, whereas non-residential tax rates are paid on the premium.

Work out what you will pay in LTT on commercial property using our free calculator.

Commercial mortgages for commercial property

So, do you pay stamp duty on commercial property? Yes, there are specific commercial tax rates for property and land purchases, unless there is an exemption, or the value falls below the minimum threshold.

But, if it’s a holiday let or a holiday home, residential rates with the second home surcharge applies.

Keep this in mind as you plan your residential and commercial purchases. If you need help with a commercial mortgage, contact us today for assistance. We’ll help you to find the best mortgage offer for your needs.

You can also find more information in our guide to commercial mortgages.

Please be aware Commercial Trust mortgage advisors cannot give you tax advice, for this please contact a qualified property tax professional.

FAQs

Scotland used to have the same stamp duty system as England, but this changed in April 2015, when it adopted the Land and Buildings Transaction Tax (LBTT). As with SDLT, there are different rates for residential/commercial properties and there is a threshold of £150,000. The actual rates differ, though:

  • Up to £150,000 = 0%
  • £150,001 to £250,000 = 1%
  • £250,000 and over = 5%

Rates accurate as of February 2024

Visit the Revenue Scotland website for more information on Scotland’s Land and Buildings Transaction Tax for commercial property.

Visit the Welsh government website for information on non-residential Land Transaction Tax.

Visit the UK government website for information on non-residential Stamp Duty Land Tax.

Commercial property bought on or after 1st April 2018 in Wales is subject to Land Transaction Tax (LTT), rather than the Stamp Duty Land Tax applicable in England and Northern Ireland.

The commercial LTT rates are:

  • Up to £225,000 = 0%
  • £225,000 to £250,000 = 1%
  • £250,001 to £1,000,000 = 5%
  • £1,000,001 and above = 6%

Rates accurate as of February 2024

Visit the Welsh government website for more details on LTT and to calculate commercial leasehold LTT.

Yes, commercial property in Northern Ireland is subject to the same Stamp Duty Land Tax that properties in England are.

If you’re purchasing a property that comprises both a residential and commercial space, such as a flat that sits above a shop, office, workshop, or doctor’s surgery, you will be expected to pay SDLT using commercial stamp duty rates.

You may need to send an SDLT form for purchases of less than £150,000, even if you don’t actually pay any stamp duty. However, there are a few exceptions:

  • Property that was left to you in a will
  • Property transferred following a divorce/dissolution of civil partnerships
  • A transfer that does not involve any money

For full details, visit the “Stamp Duty Land Tax: transactions that don't need a return” page of the UK government website.

Yes, you must pay SDLT on both freehold and leasehold property purchases. As noted above, however, the rates differ. See “Don't forget stamp duty on commercial property leases”.

Stamp duty rates for commercial premises are less than for residential property, but commercial premises can be higher in value than residential property so the actual amount you pay will vary.

The threshold at which SDLT applies is also lower. Residential stamp duty doesn’t apply to purchases of less than £250,000. With commercial stamp duty, it applies to purchases of £150,000 or more.