Stamp Duty Land Tax
Stamp Duty Land Tax (SDLT) is a charge on the transaction of property paid by the buyer.
You’ll have to pay Stamp Duty Land Tax if you buy a commercial property worth £150,000 or more. You will be charged two percent in Stamp Duty for any commercial property worth between £150,000 - £250,000. If you buy commercial property worth more than £250,000, you’ll be charged a further five percent in Stamp Duty on the remainder of its value.
The amount of Stamp Duty you’ll have to pay also depends on whether the property is freehold or leasehold.
If you want to work out how much Stamp Duty you'll need to pay, you can use the Stamp Duty Land Tax calculator on GOV.UK.
Bear in mind that Stamp Duty applies to England and Northern Ireland. The equivalents are Land and Buildings Transaction Tax (LBTT) in Scotland and Land Transaction Tax in Wales.
Another tax you’ll probably need to pay on your new commercial property are business rates.
Business rates are a tax on most commercial properties in England and Wales. They are paid by the occupier of the property.
A property with a 'rateable value' determines what you'll need to pay in business rates. The total rateable value means its rental value on the open market, as estimated by the Valuation Office Agency (VOA).
There are several factors that could affect your rateable value, including:
- The size of the premises
- The type of your business
- The value of any equipment or machinery on-site
Having a higher rateable value means that you’ll pay more in business rates.
Your business rates are calculated by subjecting your rateable value to a ‘multiplier’. This is a value set by the government each year in line with inflation.
As of 2022/23, the standard multiplier is 51.2p while the small business multiplier is 49.9p. The multipliers will be frozen at this rate until 31 March 2023.
It might be that in the long term, you're planning to rent out your commercial property to another business. To save money, you could pass your business rates bill onto your tenants.
Alternatively, if you plan to use the building for your own business, you can apply for exemptions like small business relief. You may also be eligible for a business rates relief if you’re starting up in business.
You should seek the advice of a commercial property solicitor. They can help you claim any business rates relief or exceptions that you may qualify for.
Renovations and building work
Once you’ve bought your commercial property, you’ll need to make it work for your business or for possible tenants.
You may want to alter the type of business structures of your commercial property. Perhaps that means turning a bank into a restaurant, or a shop into a post office.
All commercial property has a planning ‘use class’. Planning use classes set out which type of business can operate from the property.
Changing a commercial property’s existing purpose into another purpose is known as a ‘change of use’. A change of use can occur within the same use class, such as from a shop (Use Class A1) into a post office (Use Class A1), or from one use class to another, such as from a bank (Use Class A2) into a restaurant (Use Class A3).
Generally, you’ll need to get planning permission to change commercial property from one use class to another. A planning application for a change of use of commercial property usually costs £96. It can reach £206 if the change of use requires building work.
Of course, the cost of renovations will vary in each case and depends upon the extent of the building work. You should factor into your budget the cost of any possible building work you will need to make the property suitable for your business purposes. This is particularly true if you think it will be substantial.
You will need to make sure that the site meets health and safety regulations before you open for business. This is regardless of what you plan to do with your commercial property. Before buying the property, you should check to see how much it would cost to bring it up to standard.
A commercial property solicitor can help to give you an idea of how much any building work would cost. They can also help you understand whether it would be a good investment.
There are many ongoing costs associated with owning commercial property that you should factor into your budget, including:
- Insurance payments
- Repairs and maintenance
- Energy costs
- Service charges, such as waste collection
Most of these costs will be specific to the commercial property you’re interested in and where it’s located. But you can get a good sense of what a property’s energy costs are likely to be by looking at its Energy Performance Certificate (EPC).
The EPC tells you how energy efficient a property is. With an ‘A’ rating, it's at its most efficient. The ‘G’ rating is the least efficient EPC score. Take this rating into account when you’re thinking about a budget for your commercial property’s energy costs.
EPCs are a legal requirement if you are renting, selling, or building a property in the UK. Learn more about how much an EPC costs using Reallymoving’s useful guide.
An essential cost that you’ll need to account for is the advice of a commercial estate agent and a solicitor. They’ll help you to navigate through regulations and give you an idea of the cost of any building work. They'll also help you to claim any tax relief you might be eligible for. They can also help you to consider whether your plans for the commercial property would make it a good investment.
Are you looking for legal advice? Find a solicitor to help you with buying commercial property on The Law Superstore.