How much stamp duty do I pay on commercial property?

Posted 24th April 2023 by ctatax-admin

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £15 million in overpaid SDLT in the last 12 months. Contact us for property tax advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty

You may be aware that the rates of Stamp Duty Land Tax payable on commercial premises tend to be lower than those applied to residential property. But what does this specifically mean, and how might it be relevant not just to buyers of office blocks and warehouses, but other types of property too?

First off, it’s important to note that SDLT is charged on commercial properties in much the same way as on residential, i.e. on a ‘Slice’ system, whereby a certain percentage is payable on each ‘slice’ of value of the property up to the purchase price. However, where those ‘slices’ apply is somewhat different.

Read: Top stamp duty saving tips for landlords

Commercial property acquired for a consideration of less than £150,000 is in the ‘zero banding’ meaning that no SDLT is due (though an SDLT return must still be completed to this effect). This used to mean that smaller commercial properties were marginally more attractive from an SDLT point of view than equivalent value residential properties, but of course since then-Chancellor Kwasi Kwarteng’s infamous ‘mini-budget’ in 2022, this is no longer the case. Residential zero banding now applies to £250,000, at which point equivalent value commercial property attracts an SDLT rate of 2%, but that doesn’t mean that there isn’t room for saving higher up the market.

Indeed, the final banding for commercial property, applying from ‘£250,001 upwards’, rests at 5%, compared to residential rates which are segmented to much higher values finishing at 12% above £1.2 million. This translates in real terms to a saving of £16,750 in SDLT due on a £1.3 million commercial purchase compared to the same value residential purchase.

It should be noted that this assumes no other factors in the residential purchase which could also push the SDLT bill up, including owning additional residential properties (which attracts a 3% additional ‘surcharge’ on each banding of SDLT, including zero banding) and purchase by a non-UK resident (which attracts a 2% surcharge on each banding). None of these factors apply to commercial property, making it a potentially attractive alternative for portfolios and foreign investors.

But these rates are not merely relevant for pure commercial buildings – indeed they are referred to as ‘non-residential’ rates because they apply elsewhere, and can be relevant in certain purchases one might consider at face value to be residential.

Read: How an annexe could save you thousands on stamp duty

These so-called ‘mixed-use’ properties might be obvious like a property consisting of a shop with a flat above it, but may also be less obvious too. A farmhouse or smallholding with agricultural land. A larger residence with office or warehouse buildings in its grounds. A home with attached land which extends beyond simple gardens and may be used for agricultural or grazing purposes.

All these and more may render a property ‘mixed use’ for the purposes of SDLT calculation, and this can mean significant savings as the commercial element of the property is considered separate from the residential, making the rates applicable to both potentially lower.

It’s easy to see therefore that it’s good financial sense to make sure you are fully aware of the exact nature of the property you are purchasing, in order to ensure you make the most sound investment and minimise your tax liabilities. Talking to an expert has never been more important, especially I the current financial climate. If you’d shop around and seek expert views before buying a new phone or car, why not apply that same logic to property as well?

Cornerstone Tax is the UK’s leading property tax advisers, specialising in Stamp Duty Land Tax. We’ve reclaimed over £15 million in overpaid SDLT in the last 12 months. Contact us for property tax advice, or to see if you are eligible to claim a refund from HMRC on overpaid Stamp Duty