Did you know on commercial property subject to VAT, you also pay Stamp Duty on the VAT element?
08 Aug 2017
— Blog
Double taxation is not a myth! If you are buying or renting commercial property and the landlord has opted to tax, you must pay VAT on the rent or the purchase price.
This causes a dilemma in respect of stamp duty because you will also need to pay stamp duty at the prevailing rate on the VAT element also.
This is essentially a tax on tax. The prevailing rates of commercial stamp duty are as follows:
| Property or lease premium or transfer value | SDLT |
| Up to £150,000 | Zero |
| The next £100,000 (the portion from £150,001 to £250,000) | 2% |
| The remaining amount (the portion above £250,000) | 5% |
For example, if you buy a freehold commercial property for £300,000, the Stamp Duty you would pay would be calculated as follows:
- 0% on the first £150,000 = £0
- 2% on the next £100,000 = £2,000
- 5% on the final £50,000 = £2,500
- Total amount = £4,500
Unfortunately, there is no limitation on the stamp duty on the VAT element of the transaction, and it is not discounted for any calculation. Before committing to a lease, please be aware that stamp duty can be quite high in respect of matters such as that.
By way of an example based on the above figures, a £300,000 purchase would attract VAT at 20%, so £60,000. At 5% stamp duty, you are paying £3,000 on top of the normal payment for the tax on tax. So instead of £4,500, £7,500. There are no plans for the government to change this any time soon.
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