In this blog I provide answers to common questions people often ask about stamp duty on commercial property.
When is SDLT Payable on Commercial Leases?
Stamp duty land tax is charged in respect of leases on any premium paid for the grant of a lease and also on any rent. Lease premiums are taxed in accordance with the rates of SDLT in either Table A or Table B (see further below) and SDLT on the rent is calculated according to the special formula described below. As was the case with stamp duty, the distinction between a lease and a licence continues to be important because under SDLT a licence to use or occupy land and a tenancy at will are exempt interests and are not liable to the tax.
Stamp duty land tax is charged on any chargeable consideration consisting of rent as a percentage of the net present value of the rent payable over the term of the lease.
In other words, the total rent payable over the term of the lease is in principle charged to tax (after discounting each annual rent by 3.5% per annum to arrive at its present value). This contrasts with stamp duty on rent that was charged on only one year’s average rent at varying percentages according to the term of the lease. On average, the SDLT charge on rent when it was originally introduced represented an increase of four times the stamp duty charge on a ten-year lease.
The net present value (V) of the rent payable over the term of the lease is calculated by applying the formula:
ri is the rent payable in respect of year ‘i’
i is the particular year for which the calculation is to be performed (a calculation being required for each year)
n is the term of the lease
T is the temporal discount rate (currently 3.5%)
Having calculated the net present value of the rent (referred to as the ‘relevant rental value’) the tax is charged as a percentage of so much of that value as falls within each rate band according to the following two tables.
Table A applies where the relevant land consists entirely of residential property and Table B applies where the relevant land consists of or includes land that is not residential property. Hence, tax is chargeable on each ‘slice’ of the rental value at either the nil or 1% rate as appropriate, thus ensuring that a credit is given for the first £125,000 or £150,000 as appropriate where the rental value exceeds this figure.
Table A: Residential
|£0 to £125,000||0%|
Table B: Non-Residential or Mixed
|£0 to £150,000||0%|
|Over £150,000 but not over £5m||1%|
When is Stamp Duty on Commercial Property Paid?
SDLT payable in respect of a land transaction must be paid no later than the filing date of the relevant return although it need not accompany the return. A 14-day payment and filing period replaced the 30-day period for transactions with an effective date on or after 1 March 2019.
What are the Stamp Duty Rates on Commercial Properties?
Where the land consists of or includes land that is not residential property, the percentages in Table B apply:
Table B: Non-Residential or Mixed
|So much as does not exceed £150,000||0%|
|So much as exceeds £150,000 but does not exceed £250,000||2%|
|The remainder (if any)||5%|
If the transaction forms part of a number of linked transactions the relevant consideration for the purpose of the table above is the total of the chargeable consideration for all the linked transactions.
If you have any questions or need advice about SDLT on commercial property contact Patrick Cannon now.