A guide to stamp duty land tax (SDLT) for commercial and residential properties

Whether you’re buying a new business premises, picking up a buy-to-let property or just moving house, you’ll need to know about Stamp Duty Land Tax (SDLT).

SDLT can seem a bit complex and the rules and rates have undergone some changes recently, so we’ll guide you through it here.

What is SDLT?

Stamp duty land tax is a charge payable whenever you buy a property or piece of land in England or Wales, even if it’s a share. The tax is incremental, starting at £125,000 for residential properties and £150,000 for commercial and multi-use properties and land. Read on for a full breakdown of SDLT.

What are the SDLT rates?

The SDLT rate you pay depends on a number of factors. Those are:

  • Whether it’s a commercial or residential property
  • How much you’re paying for the building or land (the ‘consideration’)
  • Whether it’s your only property
  • Whether it’s freehold or leasehold
  • Whether you’re buying as an individual or as part of a corporate body
  • How many properties or pieces of land you’re buying at once, and whether they’re all from the same seller

The amount you’ll pay in SDLT may also depend on the effective date of transaction. If you exchanged contracts before 17 March 2016 but completed after that date, you may qualify for the old rates. If you do, you may choose which rate you pay.

If you’re paying for the land or property wholly or partly in something other than money, such as goods, services or release from debt, then you will still need to pay stamp duty. The government provides guidance on how to calculate stamp duty for non monetary payments.

SDLT for commercial vs residential properties

For both commercial and residential properties, you will have to pay SDLT on increasing portions of the property price.

What this means is that instead of paying a flat rate of tax on the full price of the property, you pay a varying amount depending on which bracket the property price falls into.

For residential properties you will start paying SDLT after the first £125,000, and for commercial properties it will start after the first £150,000.

Residential property SDLT rates

Property value SDLT rate
Up to £125,000 0%
The next £125,000 (£125,001 - £250,000) 2%
The next £675,000 (£250,001 - £925,000) 5%
The next £575,000 (£925,000 - £1.5 million) 10%
The remainder (above £1.5 million) 12%

Commercial property SDLT rates

Property value SDLT rate
Up to £150,000 0%
The next £100,000 (£150,001 - £250,000) 2%
The remainder (above £250,000) 5%

If the property you’re buying is mixed use (such as a pub or shop that has a flat above it), then it will incur the commercial rate of SDLT.

Let’s look at an example. If you’re buying a house for £275,000 this is how it would be calculated:

  • 0 per cent on the first £125,000 = £0
  • 2 per cent on the next £125,000 = £2,500
  • 5 per cent on the final £25,000 = £1,250
  • Total SDLT = £3,750

The maths can get a little tricky, so to make things easier you can use the government’s online SDLT calculator.

Higher charges for second homes and buy-to-let

If you already own a property, you will have to pay a 3 per cent surcharge on your SDLT. However, if you will be selling your current residence within the next 36 months, you can download an application form to apply for a refund.

If you exchanged contracts before the 26 November 2015 then you may not have to pay the surcharge.

Leasehold properties

SDLT for leasehold properties is slightly different to freehold properties. If you’re buying a leasehold property, whether commercial or residential, then you’ll pay SDLT on the purchase price of the lease using the same rates as for a freehold property (see the tables above).

For residential properties if the total rent you’ll pay over the life of the lease works out as more than £125,000, then you’ll also pay 1 per cent SDLT on the portion that is above £125,000

For commercial leasehold properties, if the total rent you’ll pay over the life of the lease is more than £150,000, then you’ll pay 1 per cent on any portion between £150,000 and £5 million, and 2 per cent on any portion above that.

Buying a residential property as a corporate body

As of November 2015, if you buy a residential property as a company, a partnership or as part of a collective investment scheme, then you will have to pay 15 per cent STLD on any residential properties that cost more than £500,000.

There are exceptions to this rule. The 15 per cent rate won’t be applied if the company is acting as a trustee of a settlement, or if the property:

  • will be used for a property rental business
  • has been bought by a property developer and trader for development
  • will be made available to the public
  • has been acquired by a financial institution in the course of lending
  • will be occupied by employees
  • is a farmhouse

However, properties bought under these conditions are subject to specific conditions.

Exemptions for multiple properties

There are two levels of exemption if you are buying multiple properties. The first is just for buying multiple properties at once, while the second is if you are buying multiple properties from the same person.

If you are buying six or more residential properties in a single transaction then you will pay commercial rates of SDLT instead of residential rates.

If you are buying two or more properties from the same seller (known as ‘linked purchases’) then you pay SDLT on the total value of all linked transactions as if they were one property.

You can find further guidance on linked purchases on the government’s website.

How to calculate SDLT

You can calculate how much SDLT you’ll be paying on your property using the tables above, or, alternatively using an online SDLT calculator. There is a calculator on the government’s website that will indicate if there are any special concerns for your particular transaction.

How and when to pay SDLT

You need to send a stamp duty return to HMRC and pay the tax within 30 days of completion of your transaction.

This will usually be done on your behalf by your solicitor, agent or conveyancer and you will then pay them at a later date. If you don’t have any of these acting on your behalf, or they don’t do it for you, then you can file a return and pay the tax yourself.

Recent changes to SDLT

In April this year, SDLT rates were reduced except for those buying second properties, either for themselves or for buy-to-let purposes, resulting in the 3 per cent surcharge.

To find out more, check out our article on recent changes that are affecting the buy to let market.

This article is intended to provide a guide only and shouldn’t be regarded as advice. Please seek professional advice before you make any important decisions.

Have recent changes to SDLT affected you or your business? Let us know in the comments section below.

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