Business and commercial property stamp duty explained
What to look out for
- Red Stamp duty is payable when purchasing a freehold property or a new or current leasehold
- Amber Stamp duty for companies buying property is payable at the same rate as for an individual
- Green Stamp duty rates are generally lower on a non-residential property or a mixed-use property
Looking to buy commercial property but confused about stamp duty for business? Find out how much Stamp Duty Land Tax you will pay based on the price.
What is stamp duty?
‘Stamp duty’ is a colloquial term (derived from Stamp Duty Land Tax) for three different, but related, taxes connected to property purchases in the UK.
The first is the Stamp Duty Land Tax (SDLT), which applies to the purchase of property in England and Northern Ireland. The amount payable varies depending on the value of the property and whether it is residential or non-residential.
In Scotland, the Land and Buildings Transfer Tax (LBTT) came into effect in April of 2015 and replaced the SDLT. Rates and details differ, but the LBTT is functionally similar to the SDLT.
Wales has its own property purchase tax, called the Land Transaction Tax (LTT), in effect since April of 2018. Like the LBTT, it is functionally similar to the SDLT.
When would I have to pay stamp duty?
Stamp duty is payable when one purchases a freehold property or a new or current leasehold. It also applies if you buy a property through a shared ownership scheme and any time you are transferred land or property in exchange for a payment.
Stamp duty applies to purchases made by individuals or companies. Stamp duty for companies buying property is payable at the same rate as for an individual, though individuals and companies may have different reliefs available to them.
How does stamp duty work?
Whether we are discussing the SDLT, LBTT or LTT, there are graduated tax bands that determine what amount is due.
In England and Northern Ireland, for example, the first £125,000 of a residential property purchase is not taxed. The amount from £125,001 to £250,000 is taxable at the rate of two per cent. Stamp duty for a company buying residential property is the same amount as for an individual. Both individuals and companies may be eligible for certain reliefs. It is wise to consult your financial adviser to determine if any exemptions or reliefs apply.
For individuals, there can be significant relief from stamp duty for first-time buyers of a residential property. This applies only to individuals, not to companies.
When purchasing a non-residential property or a mixed-use property, stamp duty applies, but the rates for such property are generally lower and have fewer bands. An individual buying a non-residential property pays the same rate as a company.
One significant difference in the various land transfer tax schemes is that SDLT is due within 14 days of completing the property transaction, where both LBTT and LTT are due within 30 days of completion. If you do business in more than one country of the UK, be careful you keep these dates in mind.
What are the costs of stamp duty?
The costs of stamp duty vary based on both the country in which you are buying property and the purchase price of the property. And as these are tax rates, they are subject to change. For example, Scotland made changes to the bands for non-residential LBTT, effective January 25, 2019. Check with the relevant authorities for current rates.
There is a surcharge for the purchase of an additional residential property, whether as a second home or buy-to-let. In England and Northern Ireland, the surcharge is three per cent of the total purchase price. In Scotland, it is four per cent. In Wales, the surcharge is three per cent.
Stamp duty is part of the property purchase. The amount can be calculated by your solicitor and the tax filed, along with any reliefs, when the deal is closed.
Certain corporate interests – including companies, partnerships including companies and collective investment schemes – must pay a SDLT rate charged at 15 per cent on property purchases exceeding £500,000. However, there are a number of exemptions, as listed by Her Majesty’s Revenue and Customs:
The 15 per cent rate does not apply to property bought by a company that is acting as a trustee of a settlement or bought by a company to be used for:
- a property rental business
- property developers and trader
- property made available to the public
- financial institutions acquiring property in the course of lending
- property occupied by employees
It is best to seek legal and financial advice before proceeding with your purchase to determine if your business or limited company buying property qualifies under one of these exemptions.
How can I pay for stamp duty?
Stamp duty is due shortly after the property transaction is complete (14 days for SDLT, 30 days for LBTT and LTT), so it is important to have the funds available when making an offer to purchase. To this end, many individuals and businesses include ancillary costs, such as stamp duty, in the amount they borrow for their home loan or mortgage.
If you are selling a property in addition to buying one (in the chain, so to speak), funds from your sale can be used to pay the stamp duty on the new property.
Short-term financing options, such as a line of credit, overdraft or credit card cash advance (although HMRC will not accept credit card payments directly) may be used to pay stamp duty if cash is in short supply.