Stamp duty is a form of tax introduced in England in 1694. It was originally charged on a wide variety of legal documents, including anything requiring a physical stamp. Nowadays, stamp duty only really applies to some assets, such as houses.
Anyone who has purchased a residential property will be familiar with stamp duty. But is stamp duty payable when you buy a UK business, too? In most cases, yes – but the type and amount you’ll have to pay depends on a wide range of factors.
In this guide, we’ll discuss what stamp duty tax is, and its various different forms. We’ll also explain when stamp duty applies in business acquisition, and how much you might have to pay.
What Is Stamp Duty?
Stamp duty is a form of tax payable in the UK when purchasing certain real and financial assets. There are three main taxes commonly referred to as ‘stamp duty’: Stamp Duty Land Tax, Stamp Duty Reserve Tax, and Stamp Duty.
Stamp Duty Land Tax applies when you purchase property or land in England or Northern Ireland. Scotland uses Land and Buildings Transaction Tax, whereas in Wales, Land Transaction Tax is payable instead.
Stamp Duty Reserve Tax and Stamp Duty do not apply when buying property or land. They are only payable when purchasing certain financial assets, such as shares and securities.
Do You Pay Stamp Duty on Buying a Business (UK)?
Yes: when buying a business, you will likely have to pay some form of stamp duty. However, which tax applies (and how much you have to pay) depends upon the value of the business, and how you acquire it.
There are two main ways to buy a business:
- Purchasing the shares in the company from the shareholders
- Purchasing the assets of the business from the company (e.g. commercial premises, intellectual property and customer contracts)
For asset sales, you’ll have to pay Stamp Duty Land Tax (SDLT) on any land or commercial property acquired. Other assets, such as inventory and intellectual property, aren’t subject to stamp duty. You may also have to pay SDLT when renting a commercial property.
When it comes to share sales, Stamp Duty Reserve Tax is payable on shares bought electronically. For shares bought through a stock transfer form, a different kind of stamp duty applies – helpfully named ‘Stamp Duty’.
Do You Pay Stamp Duty on Commercial Property?
The purchase of commercial property in England and Northern Ireland is subject to SDLT. As with residential property, it is always the buyer who pays stamp duty, not the seller.
The stamp duty rate on commercial property varies according to its value. As of 2022, the non-residential SDLT rates are as follows:
- 0% (zero) on property valued up to £150,000
- 2% on the next £100,000 (the portion from £150,001 to £250,000)
- 5% on the remaining value of the property (above £250,000)
Stamp duty rates are regularly subject to change, and a surcharge may apply for overseas buyers. Before agreeing to an acquisition, always consult the gov.uk website for the most up-to-date information.
Do You Pay Stamp Duty When Renting Commercial Property?
You may also have to pay stamp duty when renting commercial property. When the lease is transferred or assigned to you, you may be required to pay SDLT on the value of the lease.
The rules used to calculate SDLT on commercial leases are complicated. Broadly, the rate is based on:
- The lease premium (if any)
- The rent due (including VAT), based on the first 5 years of payments
- Any other payments under the terms of the lease, known as ‘chargeable considerations’
- The length of the lease
The above factors contribute to the lease’s Net Present Value (NPV). The SDLT rate payable is calculated based on this figure.
It can be difficult to determine the correct stamp duty rate for commercial leases, as there are so many contributing factors. If you’re unsure, contact Chelsea Corporate – one of our business buying experts will be happy to help.
Do You Pay Stamp Duty When Buying Shares in a Company?
If you’re not purchasing commercial assets, but rather buying shares in a company, you will also have to pay stamp duty. The tax you pay depends upon whether you are purchasing the shares electronically or using a stock transfer form.
Shares purchased electronically using the CREST (Certificateless Registry for Electronic Share Transfer) system are subject to Stamp Duty Reserve Tax (SDRT). The rate is 0.5%, which is applied automatically at the time of purchase.
When buying shares using a stock transfer form, Stamp Duty applies if the transaction is over £1,000. The rate is 0.5%, rounded up to the nearest £5. You must pay this directly to HMRC.
These rates are correct as of 2022. However, they are often subject to change, so always check gov.uk.
Let Chelsea Corporate Take the Stress Out of Buying a Business
At Chelsea Corporate, we understand how complicated and stressful buying a business can be. Calculating stamp duty isn’t the only part of the process that might cause confusion. So, why not let us do the hard work for you?
We’re business acquisition specialists who work for the buyer, not the seller – so we’ll always find you the best deals. Whether you’re a first-time buyer or want to expand your portfolio, we’ll find your perfect acquisition opportunity from our exclusive off-market database. Our team of experts will guide you through every step of the acquisition process, from initial discussions to closing the deal.