Key Points — Commercial SDLT 2025/26
- Three rate bands: 0% up to £150,000, 2% from £150,001 to £250,000, 5% above £250,000
- No additional property surcharge — commercial purchases avoid the 5% surcharge that applies to additional residential properties
- Mixed-use properties (e.g. flat above shop) are taxed at commercial rates, which are lower than residential rates
- 6+ residential properties purchased together can elect for commercial rates
- VAT-inclusive: SDLT is calculated on the price including any applicable VAT
- Linked transactions must be aggregated for rate calculation purposes
What Is Commercial Stamp Duty?
Commercial stamp duty — more accurately called non-residential Stamp Duty Land Tax (SDLT) — is the tax paid on purchases of commercial property, non-residential land, and mixed-use properties in England and Northern Ireland. It operates under the same progressive banding system as residential SDLT, but with different (and generally lower) rates and thresholds.
Commercial SDLT applies to a wide range of property types and transactions. Any property that is not solely residential falls under the non-residential SDLT regime. This includes purchases by individuals, partnerships, companies, trusts, and any other legal entities. The tax is paid by the buyer and must be reported to HMRC within 14 days of completion.
What Counts as Non-Residential Property?
HMRC classifies the following as non-residential (commercial) property for SDLT purposes:
- Offices: Commercial office buildings, serviced offices, and co-working spaces
- Retail: Shops, shopping centres, retail parks, restaurants, and pubs
- Industrial: Warehouses, factories, distribution centres, and workshops
- Agricultural: Farmland, agricultural buildings, and forestry
- Land: Development land without residential planning permission, bare land, and car parks
- Leisure: Hotels, guest houses, care homes (in some cases), cinemas, and gyms
- Healthcare: GP surgeries, dental practices, and veterinary clinics
- Mixed-use: Any property combining residential and non-residential elements
The classification of a property as residential or non-residential can have a significant impact on the SDLT payable. In some cases, a property that might appear residential could contain non-residential elements that qualify it for the lower commercial rates. Professional advice is essential where classification is uncertain.
Why Commercial Rates Matter
Commercial SDLT rates are significantly lower than residential rates, particularly for higher-value transactions. There are two key advantages:
- Lower rates: The top commercial rate is 5%, compared to 12% for residential
- No surcharge: The 5% additional property surcharge that applies to second residential properties does not apply to commercial purchases
These differences mean that understanding when commercial rates apply — and when a property might qualify as mixed-use — can save thousands or even tens of thousands of pounds in tax.
Non-Residential SDLT Rates 2025/26
| Up to £150,000 | 0% |
| £150,001 – £250,000 | 2% |
| Over £250,000 | 5% |
| Up to £125,000 | 0% |
| £125,001 – £250,000 | 2% |
| £250,001 – £925,000 | 5% |
| £925,001 – £1,500,000 | 10% |
| Over £1,500,000 | 12% |
Worked Example — Office Purchase
A business buys an office building for £500,000:
| Band | Taxable Amount | Rate | Tax Due |
|---|---|---|---|
| £0 – £150,000 | £150,000 | 0% | £0 |
| £150,001 – £250,000 | £100,000 | 2% | £2,000 |
| £250,001 – £500,000 | £250,000 | 5% | £12,500 |
| Total | £500,000 | £14,500 |
The effective rate is 2.9%. If this same £500,000 property were residential, the SDLT would be £15,000 (standard rates) or £40,000 (with the additional property surcharge). Commercial rates save £500 to £25,500 depending on the buyer’s circumstances.
Worked Example — High-Value Commercial
A company purchases a warehouse for £2,000,000:
| Band | Taxable Amount | Rate | Tax Due |
|---|---|---|---|
| £0 – £150,000 | £150,000 | 0% | £0 |
| £150,001 – £250,000 | £100,000 | 2% | £2,000 |
| £250,001 – £2,000,000 | £1,750,000 | 5% | £87,500 |
| Total | £2,000,000 | £89,500 |
The effective rate is 4.48%. If this were a residential purchase, the SDLT would be £161,250 (standard) or £261,250 (with surcharge). The commercial rate saves between £71,750 and £171,750 — illustrating why property classification matters enormously at higher values.
Mixed-Use Property: A Key SDLT Planning Tool
One of the most significant aspects of commercial SDLT is the treatment of mixed-use properties. A property that combines residential and non-residential elements is taxed at non-residential rates, which can result in substantial savings compared to residential rates.
What Qualifies as Mixed-Use?
A property is mixed-use if it contains both residential and non-residential elements. Common examples include:
- A flat above a shop, where the purchaser is buying both
- A farmhouse sold together with agricultural land
- A residential property with an attached commercial workshop or office
- A building containing both residential flats and commercial units
- A house with significant agricultural or equestrian land
Savings From Mixed-Use Classification
| Price | Residential SDLT | Mixed-Use SDLT | Saving |
|---|---|---|---|
| £300,000 | £5,000 | £4,500 | £500 |
| £500,000 | £15,000 | £14,500 | £500 |
| £750,000 | £27,500 | £27,000 | £500 |
| £1,000,000 | £41,250 | £39,500 | £1,750 |
| £1,500,000 | £91,250 | £64,500 | £26,750 |
| £2,000,000 | £161,250 | £89,500 | £71,750 |
The savings become dramatically larger above £925,000, where the residential 10% band begins. For properties over £1,500,000, the difference is enormous due to the 12% residential top rate versus the 5% commercial rate.
Mixed-Use: Tribunal Decisions
Several important tribunal cases have shaped the interpretation of mixed-use for SDLT purposes:
- Hyman v HMRC (2021): A property with an attached workshop was held to be mixed-use, as the workshop had genuine commercial use
- Bewley v HMRC (2019): A claim based on land potentially suitable for equestrian use was rejected — the mere possibility of non-residential use is insufficient
- Goodfellow v HMRC (2019): HMRC successfully argued that a property with small commercial elements was primarily residential
The key lesson from these cases is that mixed-use treatment requires a genuine, active, and not merely incidental non-residential element. Claims based on token or minimal non-residential use are likely to be challenged.
Commercial SDLT Calculator
Calculate the non-residential SDLT on your commercial or mixed-use property purchase. Tick the VAT box if the property is subject to VAT (the seller has opted to tax).
| Band | Rate | Tax Due |
|---|
The 6+ Property Rule
One of the most valuable SDLT planning tools for property investors is the six or more dwellings rule. When a buyer purchases six or more residential properties in a single transaction (or in linked transactions), they can elect to have the purchase treated as a non-residential transaction for SDLT purposes.
How It Works
If you buy six or more residential dwellings as part of a single transaction or a series of linked transactions, you have the choice of:
- Option A: Pay residential SDLT rates (plus the additional property surcharge) on the total consideration
- Option B: Elect for non-residential rates, paying commercial SDLT on the total consideration
In virtually all cases, Option B produces a significantly lower tax bill because the non-residential rates are lower and there is no additional property surcharge.
Worked Example — 6 Property Portfolio
An investor buys a portfolio of 6 flats for £1,200,000 (£200,000 each):
| Method | Calculation | SDLT Due |
|---|---|---|
| Residential + 5% surcharge | Standard rates + 5% on £1,200,000 | £101,250 |
| Non-residential election | Commercial rates on £1,200,000 | £49,500 |
| Saving | £51,750 |
The saving of £51,750 represents a massive reduction — more than 50% — in the SDLT bill. This rule is particularly attractive to portfolio landlords, property companies buying blocks of flats, and developers acquiring multiple units.
Linked Transactions
Linked transactions are a crucial concept in commercial SDLT. Two or more transactions are “linked” if they form part of a single scheme, arrangement, or series of transactions between the same buyer and seller (or connected persons).
How Linked Transactions Affect SDLT
When transactions are linked, the SDLT rate is determined by the total consideration for all linked transactions combined. The tax on each individual transaction is then calculated as its proportionate share of the total tax. This can push smaller individual transactions into higher rate bands.
Example: Two Linked Commercial Purchases
A business buys two adjoining commercial units from the same seller for £200,000 each as part of a single deal:
| Scenario | Rate Basis | Total SDLT |
|---|---|---|
| Unlinked (2 × £200,000) | Each taxed at own rates | £2,000 (£1,000 each) |
| Linked (£400,000 total) | Rates based on £400,000 | £9,500 |
The linked treatment increases the total SDLT from £2,000 to £9,500 — nearly five times more. This is because the combined £400,000 pushes a larger portion into the 5% band.
When Are Transactions Linked?
HMRC considers transactions linked when they are between the same parties (or connected parties) and form part of a single arrangement. Key indicators include:
- The transactions are conditional on each other
- They are negotiated together as a package
- They are designed to achieve a common purpose
- One transaction would not have occurred without the other
Transactions between connected parties (such as family members, related companies, or partners in a business) are also treated as linked if they form part of an arrangement.
VAT and Commercial SDLT
VAT is a critical consideration for commercial property purchases. Unlike residential property (which is generally VAT-exempt), commercial property can be subject to VAT if the seller has exercised the option to tax.
Key VAT Rules for Commercial Property
- Option to tax: A seller can elect to charge VAT on the sale of commercial property. This is known as “opting to tax” the property. Once opted, VAT at 20% is added to the sale price
- SDLT on VAT-inclusive price: SDLT is calculated on the total price including VAT. This means a property sold for £500,000 plus VAT of £100,000 would have SDLT calculated on £600,000
- Transfer of Going Concern (TOGC): If the buyer intends to continue the same business use and both parties meet certain conditions, the sale may qualify as a TOGC, which is outside the scope of VAT. No VAT is charged, reducing the SDLT base
- New commercial buildings: New commercial buildings (less than 3 years old) are always subject to VAT at 20%, regardless of whether the seller has opted to tax
Reliefs and Exemptions
Several reliefs are available for commercial SDLT transactions:
- Group relief: Transfers between companies in the same 75% ownership group may qualify for group relief, reducing the SDLT to nil. However, the relief can be clawed back if the group relationship breaks within 3 years
- Charity relief: Charities can claim relief from SDLT on purchases for charitable purposes, reducing the tax to nil
- Reconstruction relief: Company reconstructions that meet certain conditions may qualify for relief
- Acquisition relief: Transfers of undertakings (share for share exchanges) may qualify
- Disadvantaged areas relief: Previously available in designated areas, this has been largely withdrawn but may still apply in limited circumstances
- Compulsory purchase facilitation: Properties acquired to facilitate transport or other infrastructure projects may benefit from relief
Commercial SDLT: Practical Considerations
Leasehold vs Freehold
SDLT applies differently to leases and freeholds. For commercial leases, SDLT may be charged on both the lease premium (a lump-sum payment) and the net present value (NPV) of the rent payable over the term. The NPV threshold for non-residential leases is £150,000 — no SDLT is payable on the NPV below this amount. Above the threshold, the rate is 1% on the NPV from £150,001 to £5,000,000, and 2% above £5,000,000.
Company Purchases vs Individual
There is no difference in commercial SDLT rates between purchases by individuals and by companies. However, other tax considerations (such as corporation tax treatment of property income, capital gains implications, and annual tax on enveloped dwellings for residential elements) may influence the decision to buy personally or through a company structure.
Share Purchases vs Asset Purchases
Buying a company that owns commercial property (a share purchase) rather than buying the property directly (an asset purchase) can have significant SDLT implications. A share purchase does not attract SDLT because you are buying shares, not land. However, the commercial and legal implications of acquiring a company must be carefully considered, including any existing liabilities, contracts, and tax positions.
Development Land
Land purchased for development is subject to commercial SDLT rates, provided the land does not already contain residential dwellings. If the land includes existing residential properties, the classification depends on the nature and proportion of residential versus non-residential elements. Bare land without planning permission is always non-residential; land with residential planning permission may be treated differently depending on the specific circumstances.
Agricultural Property
Agricultural land and buildings are classified as non-residential for SDLT purposes, meaning commercial rates apply. However, a farmhouse sold together with agricultural land may raise mixed-use questions — the farmhouse is residential, but the land is non-residential. In most cases, a farm sale comprising a farmhouse and agricultural land will be treated as mixed-use, attracting non-residential rates on the entire transaction.