Legal advice: Stamp duty

Our legal team offers some advice on stamp duty for commercial properties.

By Piers Warne of thePublican.com's team of legal experts at London solicitors Joelson Wilson.​

If you are thinking of acquiring new premises, one of the expenses you will incur is Stamp Duty Land Tax (SDLT).

Just as when you buy a house, you will pay the equivalent of what used to be called stamp duty, but for freehold commercial premises the threshold is higher than for a house. Residential property is, since the March 2005 Budget, taxed over £120,000, but for commercial properties the tax does not bite until the price is over £150,000.

Remember, however, that effectively this catches a purchase at a net price above £127,660, because the seller will usually be charging VAT on the sale of a commercial property, unless it forms part of a "transfer of a going concern".

So far so good, but the picture is not so rosy in other ways. In some regions, classified as "disadvantaged areas", there was exemption from SDLT, but the Budget has removed this concession.

If you buy premises or take a lease, you should be aware that you - through your solicitor - must send a return to the Inland Revenue and pay the duty which is chargeable. In the case of a short lease (for less than 21 years), you could in the past get away with not presenting it to the Inland Revenue to pay stamp duty but there are two reasons why you can no longer do this:

• Any lease for more than seven years must be registered at the Land Registry - which will not accept a lease for registration without the Inland Revenue's certificate proving that tax has been paid
• It is illegal to fail to report the lease if tax is payable - and you can be fined for not notifying in some cases where it is not, for example, on a lease for more than seven years where the rent is too low to attract any charge to tax.

Leases are charged on a value based on a multiple of the annual rent and the term. The result is that the tax is generally much higher than stamp duty, particularly for leases granted for a long term. So a lease for 25 years at £30,000 per annum plus VAT is taxed at approximately £4,300. This compares with £705 under stamp duty. Even a short lease, such as a five-year lease at £50,000 per annum, is taxed at £1,152 - more than double the stamp duty.

Whether the business you buy is in freehold or leasehold premises, there may be other charges to SDLT. If fixtures are paid for in addition to the price for the property, the rule is that loose or detachable fittings are not taxable.

But SDLT will be payable on what are usually known as "landlord's fixtures". These would include kitchen ranges, bar counters, washroom and toilet fittings and other items which are annexed to the premises and not easily detached. And it is no good arguing that they are frequently detached on Saturday nights.