What Is Stamp Duty Land Tax (SDLT)?
Stamp Duty Land Tax is a tax on the acquisition of land in England and Northern Ireland. Scotland charges Land and Buildings Transaction Tax and Wales charges Land Transaction Tax, instead of SDLT. This page will outline and discuss the main points relating to stamp duty on commercial property.
What Is SDLT Charged On?
SDLT is charged on land transactions in England and Northern Ireland according to the price paid or in some cases the market value. A land transaction is any acquisition of a chargeable interest. This includes not only freeholds and leases, but also interests, rights and powers over land other than exempt interests such as mortgages and licenses to use land.
Do You Need to Pay Stamp Duty on Commercial Property?
Yes, stamp duty is payable on the acquisition of commercial property as well as residential property. Stamp duty on commercial properties is payable at the rates in Table B (see below). Stamp duty on commercial properties is charged at the rates in Table B where the land consists of or includes land that is not residential property.
Is Stamp Duty the same for Residential and Commercial Property?
No, the headline rates of stamp duty for commercial property are lower than for residential property. However, the effect of the nil-rate bands in the various tables of rates for a residential property including the stamp duty “holiday” until 30 June/30 September 2021 and reliefs such as those for multiple dwellings relief should be considered when comparing the total amount of SDLT payable.
You can read more about the latest updates relating to the stamp duty holiday on the HMRC site here
What Are The Rates for Stamp Duty on Commercial Property?
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.
Do You Pay Stamp Duty on Commercial Leases?
Yes, 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 on leases of commercial property are taxed in accordance with the rates of SDLT in Table B (see further above) and SDLT on the rent is calculated according to the special formula described below.
How is Stamp Duty Charged on the Rent for Commercial Leases?
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 is 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 in Table B (please see above).
Are there any Stamp Duty Exemptions and Reliefs for Commercial Property?
Yes, there are stamp duty exemptions and reliefs for sales and leasebacks, dwellings acquired from relocated employees, compulsory purchases, incorporation of limited liability partnerships, and seeding reliefs for PAIFs and COACS to name a few.
If you have any questions or need advice about SDLT on commercial property contact Patrick Cannon now.
Frequently Asked Questions
This depends on a number of factors including how many questions HMRC are seeking answers to, the detail and complexity of the factual and legal issues involved, the speed or otherwise with which the taxpayer and the HMRC investigator deal with the correspondence and whether there are matters that have to be referred for legal advisers on either side for further advice.
It is now not unusual for tax investigations to last more than 12 months and sometimes 5 or more years especially where tax avoidance schemes are involved. What seems clear is that tax investigations seem to be taking longer as HMRC become more aggressive in their approach and tend to assume the worst, especially when it comes to assessing penalties they say are due for any underpayment of tax later found to have been due.
This can be for a number of possible reasons that include suspected omission of income, over claimed deductions, your business is of a type that is being targeted by HMRC for compliance checks, or a risk assessment has thrown up possible cash (undeclared) receipts or undeclared drawings, high expense claims or late filing of tax returns and payment of tax. HMRC’s guidance is published here.
If you are suspected of committing fraud, HMRC will make a thorough investigation into your affairs, including your financial conduct around the time you are thought to have committed tax fraud. This will come about due to suspected irregularities in your tax affairs and will need to be investigated before a decision is made as to whether fraud has actually taken place.
During the tax fraud investigation process you might be issued with a Code of Practice 9 (or COP 9 for short). This gives you the opportunity to disclose deliberate and non-deliberate financial misconduct that may have led to the irregularity in question. Read on here to find out more about this option and what it entails.
If you have received an enquiry or investigation from HMRC, contact Patrick Cannon today to get advice and representation against HMRC.
You can reclaim SDLT on a commercial lease when the amount of the rent for the first five years was uncertain or variable and on recalculating the actual rent at the five-year point, the SDLT charge is lower than originally paid.