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Out-Law Guide 8 min. read

Stamp Duty Land Tax on Commercial Property

This guide sets out the basic principles of stamp duty land tax (SDLT) on commercial property transactions in England. SDLT is charged on the substance of a property transaction rather than the type of document which gives rise to the transaction. It arises irrespective of the nature or effect of particular documents, and there need not be any document for a charge to arise.

What are the main characteristics of SDLT?

SDLT is payable on land transactions where the land is in England. Land transactions in Scotland are subject to Scottish Land and Buildings Transaction Tax (LBTT) and from 1 April 2018 transactions involving land in Wales are subject to Land Transaction Tax (LTT).

A 'land transaction' is any "acquisition of a chargeable interest". This is widely defined and can include the transfer of a freehold interest and the grant, assignment, variation or surrender of a lease as well as some other less common transactions.

Exempt interests are not subject to SDLT. These include a licence to use or occupy land and a tenancy at will. However, HM Revenue and Customs (HMRC) has a strict interpretation of what constitutes a licence or a tenancy at will.

When is it payable?

SDLT liability is triggered on the 'effective date' of the land transaction. SDLT must be paid within 14 days after this date in order to avoid interest and penalties. The effective date is usually either the date the contract is completed, or on substantial performance of a contract or an agreement for lease if earlier. For transactions where the effective date was before 1 March 2019, a 30 day time limit applies.

In the case of a lease, substantial performance is broadly the earliest of any rent payment being made, when 90% or more of any premium is paid and when the tenant or a connected person takes possession of the property.

In the case of a freehold, the effective date is usually the date the contract is completed. However the contract may be regarded as substantially performed if 90% or more of the consideration is paid, or if the purchaser takes possession of the property.

HMRC regards 'taking possession' to be when the tenant or purchaser obtains the keys and is entitled to occupy the property, however this is documented.

What is it charged on?

SDLT is payable on "chargeable consideration". This includes both the money and 'money's worth' which is given directly or indirectly by the purchaser or a connected person. It can also include the release or transfer of a debt. Any VAT payable in respect of the transaction is regarded as chargeable consideration. This means that, effectively, you pay SDLT on VAT.

In terms of leases, SDLT is payable on any premium and the rent and there are different rules for each. However SDLT can be payable in respect of other payments made under the lease, or on non-cash consideration such as agreeing to do building works.

Where a contingency affects the eventual amount of consideration that will ultimately be due, purchasers must calculate SDLT on the basis that the contingent amount will be payable. However an application to defer the SDLT payable on contingent amounts can be made in some circumstances.

Where the consideration is uncertain or has not yet been ascertained, purchasers must make a reasonable estimate of the final consideration as at the effective date of the transaction and pay SDLT on that basis. This could happen where, for example, the consideration is based on profits in accounts which have not yet been drawn up. Once the consideration becomes certain or ascertained a further land transaction return will need to be submitted to HMRC within 30 days and any additional SDLT paid or overpayment reclaimed.

What are the rates of SDLT?

On freehold transfers and lease premiums in respect of commercial property



Up to £150,000




The portion from £150,000 to £250,000


The portion above £250,000




Remember that SDLT is payable on the VAT-inclusive amount. For the different thresholds and rates which apply to residential property, see the HMRC website.

On rent

In the case of rent, SDLT is charged on the net present value (NPV) of the rent payable over the term of the lease. If VAT is payable on the rent, you will have to include the VAT when calculating the NPV. HMRC provides a calculator on its website which will calculate both the NPV of rental payments and the SDLT charged on that rent.

Essentially, if the term of the lease exceeds five years, the NPV is calculated by reference to the actual rent payable for each of the first five years of the lease and then for the remainder of the term the rent is taken to be the highest rent payable in respect of any continuous 12-month period during the first five years of the term of the lease. No account is take in this initial calculation of any rent increases or reductions after the first five years of the term - whether set out in the lease or otherwise occurring.

The SDLT chargeable on the NPV amounts for commercial property is calculated using the following bands. Again, different thresholds apply for residential property.



£0 to £150,000


The portion from £150,001 to £5m


The portion above £5m


If there is a rent review or variation provided for in the lease within the first five years of the term then the initial NPV calculation should take into account a reasonable estimate of the rent which will payable after this review or variation. The NPV will then be recalculated using the actual rent figures at the end of the fifth year of the term or once the rent for the first five years becomes certain, if that happens earlier. Again, the highest 12-month figure in the first five years is used for the NPV calculation for the period of the term after the first five years. If this recalculation results in more SDLT being due, the land transaction return has to be amended and the additional SDLT paid.

What about linked transactions?

If transactions are linked, the SDLT calculation is more complicated. Transactions will be 'linked' if they form a single scheme, arrangement or series of transactions between the same parties or connected persons. This will be the case irrespective of the dates the transactions are entered into. If transactions are linked SDLT will be calculated as if the consideration for all linked transactions was amalgamated. This prevents transactions being split to take advantage of the nil rate band or a lower rate of SDLT.

In the case of leases, the tax treatment depends on whether they are linked by way of a single scheme or arrangement or as a series of successive linked leases.

SDLT on successive linked leases is calculated as though the series of leases were one lease granted:

  • at the time the first lease in the series was granted;
  • for a term equal to the aggregate of terms of all the leases in the series; and
  • in consideration of the rent payable under all of the leases in the series.

Where leases are linked but are not successive – for example, if leases of two neighbouring properties are granted by the same landlord to the same tenant – then the NPV of each lease will be aggregated for the purpose of applying the thresholds.

What happens where there is an agreement for lease?

Where an agreement for lease is substantially performed – for example, by the tenant going into occupation of the premises – a notional lease is treated as having begun on the date of that substantial performance. SDLT is calculated on this notional lease with the term running until the end of the term agreed in the agreement for lease. When the lease is actually granted the notional lease is treated as running from the date of substantial performance of the agreement for lease until the date of expiry of the actual lease in consideration of the total rent payable under the agreement for lease and the actual lease. This means that unless the terms of the actual lease differ from the agreement for lease there should be no further SDLT filing obligation once the actual lease is granted. An agreement for lease that is not substantially performed will be ignored for SDLT purposes and SDLT will be payable only by reference to the grant of the actual lease.

What if an existing lease is held over?

Where a lease is held over after the end of its term and a new lease is then granted, the SDLT position can be complicated and advice should be sought. An SDLT liability can arise in the holding over period before a new lease is granted, and interest could be running.

However, there should not be an SDLT charge before the new lease is granted, unless it is granted more than a year after the expiry of the old lease. If the new lease is granted more than a year later, an SDLT charge could arise by reference to each anniversary of the expiry of the old lease, until the new lease is granted.

What about intra group transactions?

The basic principle is that land transactions between group companies are eligible for relief. However, that relief must be claimed. Broadly, companies are members of the same group if one is the 75% subsidiary of the other or both are 75% subsidiaries of a third company.

However there are anti-avoidance provisions which prevent the relief being available in some circumstances. HMRC can also claw back SDLT relief in certain circumstances if within three years there are changes in the ownership of the purchaser - or, in more limited cases, the seller.

What about properties held in companies?

There are no specific rules concerning commercial properties held through companies or special purpose vehicles (SPVs). If the shares in such companies are sold rather than the underlying property then stamp duty will be payable at 0.5% rather than SDLT.

Special rules exist for residential properties that are held through companies.  Broadly, SDLT is charged at 15% where UK residential property costing more than £500,000 is purchased by certain non-natural persons, such as companies.  There is a 3% surcharge on residential properties bought by companies for under £500,000.

In addition, from 1 April 2013 the annual tax on enveloped dwellings (ATED) is charged annually on high value UK residential property held by certain non-natural persons. The rate of the ATED depends on the valuation of the property. For more details see our guide on Taxes on High Value Residential Property.

What are the payment/filing obligations?

There is a statutory obligation on the purchaser or tenant to submit a land transaction return and pay SDLT, if due, within 14 days of the effective date of a notifiable transaction. Note that if relief is being claimed then the transaction may still be notifiable, even if there is no SDLT to pay.

A certificate of SDLT paid may be required for the Land Registry in order to register the transaction. This certificate is issued by HMRC on the receipt of payment of SDLT.

A purchaser or tenant who fails to file a land transaction return by the filing date is subject to penalties. Interest is payable on SDLT which remains unpaid within 14 days of the effective date of the transaction.

Are there any anti-avoidance rules?

There are various anti-avoidance rules designed to prevent the avoidance of SDLT by using schemes. There is also an obligation on promoters of schemes to disclose them to HMRC.

Scotland and Wales

In Scotland, from April 2015, UK SDLT was replaced by a Land and Buildings Transaction Tax (LBTT) collected by the Scottish Government.  LBTT applies to all real estate transactions in Scotland.

Different rates of LBTT apply to residential and commercial property; however, both systems involve staggering rates, whereby different rates apply to different consideration bands and only consideration falling in each band is tax at that rate.  For more information on LBTT, see our guide on Land and Buildings Transaction Tax in Scotland.

For transactions taking place on or after 1 April 2018 involving land in Wales, Land Transaction Tax applies rather than SDLT. See our guide to Land Transaction Tax in Wales.

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