It’s law that any property buyer must declare the circumstances of their transaction with HMRC. The nature of your declaration can lead to additional tax considerations, especially when it comes to the transfer of commercial property. One such potential charge that those interested in obtaining or transferring commercial property need to be aware of is stamp duty land tax. This post is designed to provide all the relevant information you need to know about this tax and how it relates to commercial conveyancing.
What is stamp duty land tax?
Stamp Duty Land Tax (SDLT) is a special type of tax in England and Northern Ireland that applies to property buyers when they make a purchase over a certain threshold. In Scotland the equivalent is the Land and Buildings Transaction Tax, while in Wales it’s called the Land Transaction Tax. For those that are buying a property for below the threshold, no SDLT will apply. However, it should be noted that there are different thresholds for residential and commercial properties, as well as first time buyers.
When do you pay stamp duty land tax?
SDLT is considered payable when someone buys a freehold property, a new or existing leasehold property, buys a property through an ownership scheme, or when they are transferred property in exchange for a payment. However, there are also a number of instances which make it so the property buyer does not have to pay SDLT. These include:
- Property transfer occurs due to divorce.
- No payment has occurred to result in the property changing hands.
- The property is part of an inheritance.
- The individual is a first-time buyer and the property in question is valued at less than £300,000.
- The property is freehold and purchased for less than £40,000.
- The individual is assigned a lease of less than 7 years where the amount paid is less than the SDLT threshold.
SDLT for non-residential land and property
Under current legislation, those receiving commercial or mixed property in exchange for a payment are required to pay SDLT if £150,000 or more is paid. However, you will still have to send a tax return even if the payment is under this amount. The government considers ‘non-residential property’ to include:
- Properties used for commercial purposes, such as shops or office spaces.
- Agricultural land used for farming and other related reasons.
- Property that’s deemed unsuitable to be lived in.
- Land or property that isn’t part of a dwelling’s grounds.
- Six or more properties or any kind bought in the same transaction.
- Forested areas.
While the threshold for commercial property transactions and purchases is £150,000, the SDLT rate of tax will change depending on the amount the individual pays over this amount. As such, the total amount of tax someone pays on a commercial property transaction varies depending on their final payment figure and the type of transfer. By getting advice from an experienced commercial property conveyancer, you’ll be able to avoid paying unnecessary amounts of SDLT.
Freehold transfers and sales
Those buying or getting transferred a freehold commercial property must pay a SDLT rate of 2% on any amount of their payment between £150,001 and £250,000. Any remaining payment value is subject to 5% SDLT. An as example, someone buying a freehold commercial property for £300,000 would calculate their SDLT as follows:
- The first £150,000 = 0%.
- The next £100,000 at 2% = £2,000.
- The final £50,000 at 5% = £2,500.
- The total SDLT for this transfer/sale is therefore £4,500.
Leasehold transfers and sales
For commercial properties that are leasehold, SDLT is calculated against the price of the lease. However, if it’s a new leasehold property, you need to add together the lease purchase price and the value of annual rent you are set to pay. If the net total value of the rent is below £150,000, no SDLT will apply. Any amount of this projected value between £150,001 and £5,000,000 will have a 1% SDLT rate imposed. Anything over £5,000,000 will then be subject to 2% SDLT.
What’s the deadline for paying stamp duty land tax?
Oftentimes, a SDLT return must be paid within two weeks of the completion of the transaction.
Expert commercial property conveyancers Newcastle
In summary, Stamp Duty Land Tax is likely to affect most commercial property purchases and transfers. Toomey Legal have a nuanced understanding of the conveyancing process for both residential and commercial properties. Our team will take the time to understand your situation, business, and goals in order to get the best tax outcome for you. Contact us today to get started.