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How do I pay stamp duty on commercial property leases?

If you've ever purchased a property, you'll have heard of Stamp Duty Land Tax. Often referred to as SDLT for short, Stamp Duty Land Tax is payable on property purchases above a certain value. Although it is well known that SDLT is payable on home purchases valued above this threshold, many business owners do not know that it is also payable on some commercial leases.

In this blog post, the Sweeney Miller team takes you through the most common questions people ask us about Stamp Duty Land Tax and commercial leases.

Do I have to pay Stamp Duty on a Commercial Property Lease?

The simple (and probably disappointing) answer is – it depends. If you are a commercial tenant, SDLT may be payable on any of the following facets of your commercial lease:

  • Grant
  • Assignment
  • Variation
  • Surrender

SDLT is not payable on all commercial leases, which makes this area of law particularly complex. To add insult to injury, failure to pay on time often results in additional liability for the overdue payment plus accrued interest, as well as a fine payable to HMRC.

Calculating your liabilities wrong can also lead to unintended consequences. If you happen to overpay your SDLT, obtaining a refund from HMRC is not a simple task. We recommend expert legal advice from a commercial law solicitor in order to ensure you do not fall foul to either of these possible mistakes.

How is Stamp Duty Land Tax calculated on a Commercial Property Lease?

We will take this step by step, as it is a complicated process. SDLT calculations are based on any lease premium paid by the tenant, and on the rent due under the terms of the lease. If applicable, VAT will be included.

The length of the lease is factored in and the “Net Present Value” or NPV of the lease is then calculated in order to determine the amount of SDLT.

The NPV bases its rent figure on the rent due for the first 5 years of the lease. In the event that a lease exceeds the five-year term, NPV will be calculated using the highest amount paid over any 12-month period during the first 5 years.

Of course, commercial law is rarely this simple. SDLT could also be applied to additional payments made under the terms of your lease. It may also apply to payments known as “chargeable considerations” – a vague term used to denote things like a tenant’s obligations to carry out renovations on their rented property, for example.

When should I pay Stamp Duty Land Tax for a Commercial Property Lease?

You should pay SDLT within 14 days of the “effective date” of the transaction. This might be when the tenant moves in when the first rent payment is paid, when the contract is completed, or even when some form of “substantial performance” of the transaction has taken place.

If you are the tenant, you are wholly responsible for calculating SDLT and paying on time. If SDLT becomes payable again – for example if your lease renews or is extended – the tenant again must fulfil the sole responsibility of calculating and paying SDLT.

Pay the SDLT due on your Commercial Property Lease with Sweeney Miller Solicitors

Sound complicated? Gain expert advice from a commercial law solicitor with Sweeney Miller. We can advise current and prospective tenants on their legal obligations regarding SDLT and will ensure you fully understand every step of this complex process. Head over to our Commercial Property service page to find out more.

 

Alternatively, you can speak to us today or drop us an email with the contact details below.

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