Commercial Property Tax – SDLT & VAT Solicitors

Commercial Property Tax – SDLT & VAT Solicitors

Tax can have a significant impact on the overall cost and structure of a commercial property transaction.

Whether you are buying an investment property, acquiring development land, entering a new commercial lease, transferring property between companies or restructuring a portfolio, Stamp Duty Land Tax (SDLT) and Value Added Tax (VAT) should be considered before the transaction is completed.

At Knights & Shah Solicitors, we advise on the property-law aspects of SDLT and VAT in commercial property transactions.

Our work can include:

• Commercial property acquisitions
• Commercial property disposals
• Investment property
• Development land
• New commercial leases
• Lease assignments
• Property transfers
• Corporate property transactions
• Portfolio restructuring
• SPV transactions
• Refinancing-related transfers
• Options and development arrangements
• VAT and option-to-tax considerations
• Transfers of property businesses
• SDLT returns and transaction completion requirements

Tax treatment can depend heavily on the particular facts.

Where a transaction requires specialist tax planning or accounting advice, we work with the client's accountant or specialist tax adviser rather than making assumptions about the tax outcome.

Stamp Duty Land Tax and Commercial Property

SDLT applies to qualifying acquisitions of land and property in England and Northern Ireland.

For commercial property, it can arise when acquiring:

Freehold commercial property

Leasehold commercial property

Development land

Investment property

Mixed-use property

Certain other interests in land

The amount payable depends upon matters including the nature of the property, consideration and transaction structure.

Different land transaction taxes apply in Wales and Scotland.

For a commercial property transaction in England, SDLT should be considered at an early stage because it can form a significant part of the acquisition cost.

Current Non-Residential SDLT Rates

As at September 2026, the SDLT rates for a freehold non-residential or mixed-property acquisition, and for a non-residential lease premium, are:

These are marginal rates: each rate applies to the relevant portion of the consideration rather than one rate applying to the entire purchase price.

For example, the SDLT on a £1 million straightforward non-residential acquisition would be calculated across the relevant bands rather than by simply applying 5% to the entire £1 million.

The precise liability can differ where special rules apply.

SDLT on Commercial Property Acquisitions

When purchasing commercial property, SDLT should be considered alongside:

Purchase price

VAT

Finance

Professional fees

Development expenditure

Other acquisition costs

The transaction documents also need to reflect the agreed consideration correctly.

Potential complexity can arise where the transaction includes more than a straightforward cash purchase price, for example where there are:

Assumed liabilities

Connected transactions

Multiple properties

Conditional consideration

Deferred consideration

Other forms of consideration

The SDLT position should therefore be established from the actual transaction rather than estimated solely from the headline property value.

SDLT on Commercial Leases

SDLT can also arise when a new commercial lease is granted.

For a new non-residential lease, SDLT may be calculated separately on:

Any lease premium; and

The net present value (NPV) of the rent.

For the rental element, the current non-residential rates are:

The relevant portions of the NPV are taxed at those rates.

This means that a lease with no substantial premium can still generate an SDLT liability because of the rent payable during its term.

Net Present Value of Rent

The NPV calculation is not simply the total amount of rent due throughout the lease.

HMRC applies a statutory calculation to determine the present value of rental payments.

For the first five years, the calculation generally takes account of the rent payable or a reasonable estimate where the amount is uncertain. Specific rules then apply to later years.

This can be particularly relevant for:

Long leases

Stepped rents

Variable rents

Turnover arrangements

Rent-free periods

Other structured rental arrangements

The SDLT calculation should therefore be completed using the appropriate statutory methodology.

Lease Premiums

Some commercial leases are granted in return for both:

A premium; and

Ongoing rent.

In those circumstances, SDLT can potentially arise on both elements.

The lease premium is generally considered using the non-residential acquisition rates, while the rental element is considered separately through the NPV calculation.

The total SDLT liability can therefore contain two separate components.

Assignment of an Existing Commercial Lease

An assignment of an existing lease is treated differently from the grant of a new lease.

Where an existing non-residential lease is acquired for consideration, SDLT can arise on the price or other chargeable consideration paid for the assignment.

HMRC's current guidance distinguishes this from the grant of a new lease, where the NPV of rent may also need to be considered.

Our lease assignment service is:

https://knightsshahsolicitors.com/commercial-property/commercial-leases/lease-assignments-licences/

SDLT and Lease Variations

Changes to an existing commercial lease can sometimes have SDLT consequences.

For example, a transaction may involve changes to:

Rent

Lease term

Property extent

Other substantive lease arrangements

Not every lease variation produces additional SDLT.

However, significant changes should be reviewed before documentation is completed so that any resulting filing or tax consequences can be identified.

SDLT and Property Development

Development transactions can involve more complicated land arrangements than an ordinary investment acquisition.

A development project may involve:

Site acquisition

Conditional contract

Option agreement

Overage

Site assembly

Development agreement

Joint venture

Forward sale

Pre-let

The SDLT treatment depends upon the particular structure.

Tax considerations should therefore be examined before the development documentation becomes fixed.

Our Property Development section is:

https://knightsshahsolicitors.com/commercial-property/property-development/

SDLT and Options

An option agreement gives a party a contractual right to acquire land if the option is exercised in accordance with its terms.

Development structures involving options can raise SDLT questions both around the arrangement itself and the later land acquisition.

The position depends upon the structure and circumstances.

Our dedicated service is:

https://knightsshahsolicitors.com/commercial-property/property-development/options-overage-agreements/

SDLT and Overage

Overage allows a seller to receive additional consideration after a property has been sold if specified future events occur.

Common triggers include:

• Planning permission
• Development
• Increase in value
• Disposal

Because overage can form part of the consideration connected with a land transaction, its SDLT treatment should be considered when the acquisition is structured.

The precise treatment depends upon the drafting and circumstances.

SDLT and Connected Companies

Commercial property is sometimes transferred between connected parties.

Examples include:

• Individual to company
• Company to connected company
• Group restructuring

Clients should not assume that SDLT is calculated only by reference to the cash actually changing hands.

Special statutory rules can apply to connected-party transactions.

This is particularly important when restructuring property ownership or transferring property into an SPV.

Our Property Structuring service is:

https://knightsshahsolicitors.com/commercial-property/property-management-advisory/property-structuring/

SDLT and Group Transactions

Property can also move between companies within the same corporate group.

Depending upon the circumstances, specific reliefs may potentially be available.

However, relief should never be assumed simply because the companies have common ownership.

The statutory conditions and any relevant restrictions need to be considered.

Where substantial tax planning is involved, appropriate specialist tax advice should be obtained before the property is transferred.

Linked Transactions

Separate property transactions can sometimes be treated as linked for SDLT purposes.

HMRC's current guidance confirms that where transactions are linked, the applicable rates can be determined by reference to the combined consideration, subject to the relevant statutory rules.

This can be relevant to:

Portfolio acquisitions

Multiple properties bought from the same seller

Connected transactions

Structured acquisitions

The transactions should therefore be considered collectively where appropriate rather than assuming that each can always be taxed independently.

SDLT and Mixed-Use Property

Commercial transactions can involve property containing both residential and non-residential elements.

Examples can include:

• Shop with a flat
• Commercial premises with residential accommodation
• Mixed investment portfolios

HMRC defines mixed property as property containing both residential and non-residential elements and applies the non-residential/mixed-property SDLT framework where the statutory classification is satisfied.

Classification can materially affect the SDLT calculation and should be based on the facts.

VAT and Commercial Property

VAT treatment of land and buildings can be considerably more complex than SDLT.

Commercial property transactions may be:

Exempt from VAT

Standard-rated

Affected by an option to tax

Subject to special rules

Potentially treated as a transfer of a going concern

The VAT position should be established before exchange or completion because it can affect:

Purchase price

Deposit

Completion funds

SDLT calculation

Cash flow

Tax recovery

Where the VAT position is complex, specialist tax advice may be required.

The Option to Tax

One of the most important VAT concepts in commercial property is the option to tax.

Broadly, an owner may choose to opt to tax a particular interest in land or buildings, subject to the applicable rules.

Where an effective option applies, supplies that would otherwise be exempt may become taxable.

HMRC's current guidance confirms that an option to tax affects the supplies made by the person who exercises it; importantly, an owner's option does not automatically transfer to a purchaser when the property is sold.

This is particularly important in investment property transactions.

Why the Option to Tax Matters

Suppose a commercial investment property is being sold and the seller has opted to tax it.

VAT treatment can affect:

Price payable at completion

Buyer's funding requirements

SDLT

Buyer's VAT position

TOGC analysis

The sale contract should therefore address the VAT position clearly.

The parties should establish the position before completion rather than assuming that VAT treatment can be corrected afterwards.

VAT and Commercial Property Sales

The VAT treatment of a commercial property sale depends upon matters including:

• Type of property
• Age and nature of building
• Seller's VAT position
• Option to tax
• Buyer's position
• Intended use
• Whether TOGC treatment may apply

For example, HMRC's TOGC guidance notes that freehold transfers of certain new commercial buildings can be standard-rated even without an option to tax.

The VAT position should therefore be checked for the particular asset.

VAT and Commercial Leases

VAT can also affect commercial rent.

Where a landlord has made an effective option to tax, rent and other relevant supplies can potentially be subject to VAT.

This can affect:

Rent

Lease premium

Deposit calculations

Service charge treatment

Tenant cash flow

The lease should accurately reflect the agreed VAT position.

Our Commercial Leases section is:

https://knightsshahsolicitors.com/commercial-property/commercial-leases/

Transfer of a Going Concern – TOGC

A particularly important concept in investment property transactions is the Transfer of a Going Concern, commonly abbreviated to TOGC.

Where the statutory conditions are satisfied, the transfer of a business or part of a business may be treated as outside the scope of VAT rather than as an ordinary taxable supply.

HMRC confirms that land and buildings can form part of a TOGC where the relevant conditions are satisfied.

This can be particularly relevant when a let commercial investment property is sold and the buyer continues the property rental business.

TOGC and Let Investment Property

A common example is:

Seller owns a commercial property.

Property is let to tenants.

Buyer acquires the investment.

Buyer continues the property rental activity.

Depending upon the facts and satisfaction of the relevant statutory requirements, the transaction may potentially qualify for TOGC treatment.

However, TOGC treatment should never simply be assumed because a property has a tenant.

The specific requirements need to be considered.

TOGC and Option to Tax

The interaction between TOGC and the option to tax requires particular care.

Where the relevant property would otherwise be taxable because of an option to tax, HMRC's current guidance provides that the purchaser may need to have made its own option to tax by the relevant date and provide the required notification concerning non-disapplication for TOGC treatment to apply.

The seller's option itself does not transfer to the buyer.

Timing can therefore be critical.

VAT and Property Development

VAT can have substantial implications for development projects.

Issues can arise concerning:

Acquisition of development land

Construction

Professional costs

Disposal

Leasing

Option to tax

Joint ventures

The appropriate VAT treatment depends upon the project.

Developers should therefore consider VAT alongside:

SDLT

Finance

Ownership structure

Development documentation

Exit strategy

Tax advice obtained after the structure has been implemented may come too late to achieve the intended commercial outcome.

VAT and Corporate Property Transactions

Property can form part of:

Business acquisition

Asset sale

Corporate reorganisation

Group transfer

Investment transaction

The VAT treatment of the property element should be considered alongside the corporate transaction.

This is particularly important where a property business may be transferred as a going concern.

Our Corporate Property Support service is:

https://knightsshahsolicitors.com/commercial-property/property-management-advisory/corporate-property-support/

VAT and Property Restructuring

Moving property between companies can create VAT issues as well as SDLT issues.

The parties should consider:

Existing option to tax

VAT registration

Nature of property

Intended use

Whether a business is being transferred

Whether TOGC rules may be relevant

A transaction should not proceed on the assumption that an internal group transfer has no VAT consequences.

SDLT and VAT Can Interact

SDLT and VAT should not always be considered separately.

Where VAT is properly chargeable on consideration for a land transaction, it can affect the amount of consideration taken into account for SDLT purposes.

This means VAT treatment can potentially influence the overall SDLT cost of the transaction.

For substantial commercial property acquisitions, establishing the VAT position early can therefore be important not only for VAT but also for calculating transaction costs.

Tax and Commercial Property Finance

The tax structure of a transaction can also affect financing.

A lender needs to know the amount required to complete the transaction.

Unexpected VAT or SDLT can create a funding shortfall if it has not been included in the completion calculation.

Property tax should therefore form part of the transaction budget from an early stage.

Our Commercial Property Finance service is:

https://knightsshahsolicitors.com/commercial-property/transactions/commercial-property-finance/

SDLT Returns

Where an SDLT return is required, it needs to be prepared using the correct transaction information.

The return may require information concerning:

Purchaser

Seller

Property

Consideration

Transaction type

Lease details

Relevant tax calculation

Applicable reliefs

Even where no SDLT is ultimately payable, a return can still be required for many transactions. HMRC expressly notes this in its current non-residential guidance.

Any claimed relief should be based upon the transaction actually satisfying the statutory requirements.

Tax Advice and the Solicitor's Role

Commercial property taxation can cross several professional disciplines.

The property solicitor's role can include:

• Identifying potential SDLT issues
• Preparing transaction documentation
• Handling SDLT compliance within the conveyancing transaction
• Identifying VAT provisions required in property documents
• Coordinating with tax advisers
• Ensuring the legal documentation reflects the intended structure

However, detailed tax planning can require specialist tax and accounting advice.

At Knights & Shah Solicitors, we make that distinction clear.

Where specialist advice is required, we can work alongside the client's:

Accountant

Tax adviser

Corporate adviser

Finance adviser

This provides a more robust approach than making assumptions about complex tax treatment.

Common Commercial Property Tax Issues

Problems can arise where:

SDLT is considered only immediately before completion

VAT status is unclear

Option-to-tax evidence has not been established

TOGC treatment is assumed without checking the requirements

Connected-party rules are overlooked

Lease SDLT is not considered

Linked transactions are reviewed separately

Restructuring occurs without tax advice

VAT has not been included in transaction funding

Relief is assumed without checking eligibility

These issues can result in delays, unexpected cost or the need for specialist advice at a late stage.

Early consideration is usually preferable.

Our Approach to SDLT and VAT in Commercial Property Transactions

1. Understand the Transaction

We establish what property is being acquired, leased, transferred or restructured.

2. Identify Potential SDLT Issues

We consider the transaction type, consideration and any relevant property structure.

3. Establish the VAT Position

Where VAT may be relevant, the contractual position and available documentation are reviewed.

4. Identify Specialist Advice

Where detailed tax planning is required, this should be obtained before the structure becomes fixed.

5. Draft the Property Documentation

The contract, transfer, lease or other documentation should reflect the established tax treatment.

6. Complete the Transaction

SDLT and VAT requirements are incorporated into the completion arrangements.

7. Deal With Post-Completion Requirements

Where applicable, the SDLT return and associated property registration work are completed.

How Knights & Shah Solicitors Can Help

We can assist with SDLT and VAT considerations arising from:

Commercial property acquisitions

Investment property purchases

Development land

Commercial leases

Lease assignments

Property disposals

Corporate property transactions

Property restructuring

SPVs

Group property transfers

Portfolio transactions

Options and development arrangements

Property refinancing involving transfers

TOGC property transactions

Option-to-tax issues

SDLT compliance

Where a transaction requires detailed tax planning, specialist tax advice or accounting advice, we work alongside the client's appropriate professional advisers.

Why Choose Knights & Shah Solicitors?

Commercial Property Focus

We consider SDLT and VAT in the context of the underlying commercial property transaction.

Transactional Perspective

Tax issues are considered alongside title, leases, finance, development and completion requirements.

Investment and Development Experience

Commercial property tax issues frequently arise in investment acquisitions, development transactions and portfolio restructuring.

Joined-Up Property Advice

We can coordinate tax considerations with acquisitions, leases, property structuring, corporate transactions and refinancing.

Clear Scope of Advice

We distinguish between property-law and conveyancing tax work and specialist tax planning, bringing in appropriate professional expertise where required.

Based in Woking, Serving England

Knights & Shah Solicitors is based in Woking, Surrey and advises commercial property investors, landlords, developers and businesses across England.

Speak to Our Commercial Property SDLT & VAT Solicitors

Whether you are buying commercial property, taking a new lease, restructuring a portfolio, transferring property between companies or acquiring a let investment, SDLT and VAT should be considered before the transaction structure is finalised.

Knights & Shah Solicitors advises on the property aspects of SDLT and VAT and can coordinate with specialist tax advisers where the transaction requires detailed tax planning.

Contact our Commercial Property team to discuss the SDLT and VAT aspects of your proposed transaction.