When you are deciding how much you are prepared to pay for a commercial property, you must take into account any Stamp Duty Land Tax (SDLT) you will have to pay on top of the purchase price.  Where SDLT is payable on a transaction, you must pay within 14 days or face penalties and interest.  The rules on when SDLT applies and at what level are complex, so you should discuss it with your solicitor well in advance, so that you have funds available in good time.

‘Paying SDLT on top of a hefty purchase price can feel like a burden when you buy commercial property,’ says Chloe Emery, a Solicitor in the commercial property team with Wollens. ‘But it produced £11.6 million for the UK Government in 2023/24. While there are legitimate ways to structure transactions to reduce your SDLT bill, it is hard to avoid altogether. The best approach is to work with your solicitor to understand what you will need to pay, so you avoid an unwelcome surprise just before completion.’

Commercial property transactions subject to SDLT

SDLT is a tax on land transactions.  You may have to pay SDLT if you buy freehold land or pay a premium to buy a leasehold interest (for example a 999-year lease subject to a ground rent).  SDLT may also be due if you take a new commercial lease (for example a 10-year term with a market rent).  In addition, SDLT can be payable on a range of other transactions that you might not expect, including the grant of an option to purchase land or the grant of an easement.  Even more unexpected, SDLT could even be due on a lease variation or the release of rights (for example, on a right of light agreement).  Your solicitor will explain whether or not your transaction falls within the scope of SDLT, but that is only the first step.  They will need to decide whether the deal must be notified to HMRC on an SDLT return form and, most important of all, how much tax you actually have to pay.

Calculating SDLT

SDLT is charged on the total consideration for the transaction, including VAT if that is payable, so remember to take that into account if necessary.  Commercial and mixed-use property has its own set of SDLT rates, which are applied to the price you pay in bands or slices.  Your solicitor will advise you of the rates at the time, but in summer 2025, you would pay:

• no SDLT on the first £150,000;
• 2% on the next £100,000 (from £150,001 to £250,000); and
• 5% on any part of the consideration above £250,000.  

On the grant of a new lease, SDLT is charged on a figure based on rent you are assumed to be paying over the term of the lease but discounted to arrive at a sum referred to as the ‘net present value’.  In summer 2025, you would pay:

• no SDLT on the first £150,000;
• 1% on any portion from £150,001 up to £5,000,000; and
• 2% on anything above that.

You may be able to claim some sort of relief which will reduce the amount of SDLT you pay.  There is a range of reliefs available for particular situations and your solicitor can explain these to you.  For example, group company relief means that in most circumstances no SDLT is charged when property is transferred from one company to another in the same group.

SDLT calculations are often complex and they can be affected by the way your transaction is structured.  Your solicitor will advise you about your specific SDLT liability but one trap to watch out for is the rule on linked transactions.  Put simply, this means that if you agree to buy two or more properties from the same person as part of one deal but document them all as separate purchases, you have to add up the total price you are paying for all of them and calculate SDLT on that total rather than doing several individual calculations.  This means you only get one slice of £150,000 on which you pay no SDLT, rather than getting it for each property.  HMRC put this rule in place to stop people deliberately splitting deals to reduce the amount they would pay.

You may have agreed to pay only part of the purchase price on completion, with a further payment due at some point in the future, for example if you are paying overage on a development site or have kept part of the price back as a retention until some condition has been satisfied.  Your solicitor will explain how the rules apply to your deal but, in general, you should expect to have to pay SDLT on the whole price upfront.  If you do not know exactly how much overage will be due, you must make a reasonable estimate and pay SDLT on that.

Completing the SDLT return and paying SDLT

If you need to notify HMRC about your transaction, you have to submit an SDLT return.  This can be fairly straightforward or more complex, depending on the transaction.  Your solicitor will usually prepare the form (unless you have agreed that your tax advisor will be doing it) but you will have to check and sign it.  The return must be submitted and the SDLT paid within 14 days of what HMRC refers to as the ‘effective date’.  For most transactions, this means the date on which you complete the deal and pay either all of the price or the balance if you have already paid a deposit.  If you are doing something unusual like taking possession of the property before completing the purchase or paying the bulk of the price early, the effective date will occur early, so you will have to submit your return and pay any SDLT early.  This also applies if you have entered into an agreement for lease and go into occupation to do fit out works before the lease is granted.  Make sure you let your solicitor know about any arrangements like this, so they can ensure you do not incur penalties and interest for submitting your return and paying SDLT late. 

How we can help

SDLT can be tricky, but as with all taxes, it is important to get the paperwork right and pay on time.  Our team of commercial property experts can work out what you owe and deal with your SDLT return for you, so you can be confident that you have done everything you need to.

You can also complete an online enquiry form. One of the Wollens team will contact you as soon as they are available.