Stamp Duty for a Purchase of Business in the UK

Summary

• When purchasing a business in Australia, stamp duty may apply to the transfer of certain assets, particularly real property and, in some states, goodwill or other dutiable property.
• The rate and scope of stamp duty varies by state and territory, meaning the structure of a deal can significantly affect the total duty payable.
• Asset purchases and share purchases are treated differently for stamp duty purposes, and choosing the wrong structure can result in unexpected costs.
• This is a plain-English guide to stamp duty obligations when buying a business in Australia, aimed at business owners and prepared by LegalVision, a commercial law firm.
• LegalVision specialises in advising clients on business acquisitions and the stamp duty implications that arise from them.

Tips for Businesses

Before finalising a business purchase, confirm which assets are dutiable in the relevant state or territory. Consider whether a share purchase may reduce stamp duty exposure compared to an asset purchase. Engage a lawyer early to structure the transaction efficiently and avoid unexpected duty liabilities at settlement.

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On this page

• What is Stamp Duty?
• Stamp Duty for Shares
• When Will I Not Have to Pay Stamp Duty on Shares?
• Stamp Duty Land Tax
• Key Takeaways
• Frequently Asked Questions

Stamp duty is a tax that you may have to pay if you are purchasing a business. It can apply to a business’s assets and shares. Knowing stamp duty rates is important when planning to buy a business, as it is a cost that you will have to factor in. This article will outline some of the key points to keep in mind when dealing with stamp duties and touch on circumstances where you may not have to pay stamp duty.

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What is Stamp Duty?

As mentioned, stamp duty is a tax levied on certain types of goods. Usually, the purchaser of the land or shares will pay the tax. Stamp duty primarily applies to:

• shares;
• marketable securities; and
• certain transactions involving partnerships.

Stamp Duty for Shares

If you purchase a business by buying shares, you will have to pay stamp duty tax depending on how you acquired the shares and the value of the shares. This will apply to the purchase of:

• existing shares in a UK company;
• existing shares in a foreign company with a share register in the UK;
• rights in relation to new shares; and
• an option to buy shares.

Crucially, whether you buy the shares online or through a stock form will make a difference. If you purchase the shares electronically, you will have to pay stamp duty reserve tax. However, if you purchase the shares through a stock transfer form, you will only pay stamp duty if the purchase was for over £1,000.

When Will I Not Have to Pay Stamp Duty on Shares?

You will not be taxed through stamp duty on shares in certain situations. For example, if you:

• do not pay any money for the shares you receive;
• receive the shares because you have subscribed to a new issue of shares in the company; 
• buy shares in an ‘Open Ended Investment Company’ from the fund manager; or
• buy units in a unit trust.

Further, you will usually not have to pay stamp duty if you are purchasing shares in a non-UK company (though you may have to pay other types of tax). However, if you are purchasing an entire business, in all likelihood, you will have to pay stamp duty, and the standard stamp duty rate is 1.5% on shares.

Stamp Duty Land Tax

Stamp duty land tax is also a common term that you may encounter when dealing with stamp duties. Stamp duty land tax will apply if you are buying the assets of a business, and those assets include land. Stamp duty land tax is usually at a rate between 1-5%, depending on the property. You can access a stamp duty calculator online to get a closer approximation of the amount you will have to pay on land. 

Examples of Property

Some examples of property that you will have to pay stamp duty land tax on include:

• a business premise, such as a coffee shop;
• a factory; and
• agricultural land.

This applies if you are buying a ‘mixed’ property. Mixed property is a property that includes a residential aspect and a commercial aspect, such as a coffee shop with a dwelling house above it.

Further, the stamp duty land tax applies to both leasehold and freehold titles. 

Amount of Tax

The amount that you are taxed varies with the value of the property. The first £150,000 of the property is not subject to stamp duty land tax. The next £100,000 is subject to a 2% stamp duty land tax. The remainder of the property’s value is subject to a 5% stamp duty land tax. 

You can avoid having to do the maths yourself by using a stamp duty calculator. 

Key Takeaways

Knowing the amount of stamp duty that you have to pay is important, so you know how much your business purchase will cost. Property purchases will be taxed at different rates depending on the purchase price, rather than the property’s value. Further, share purchases are usually taxed at standard rates of 1.5%, but this may vary depending on the value of the share purchase. Remember that you can use a stamp duty calculator to know exactly how much you can expect to pay as part of your stamp duty obligations. 

LegalVision provides ongoing legal support for businesses through our fixed-fee legal membership. Our experienced business sale and purchase lawyers help businesses manage contracts, employment law, disputes, intellectual property, and more, with unlimited access to specialist lawyers for a fixed monthly fee. To learn more about LegalVision’s legal membership, call 0808 196 8584 or visit our membership page.

Frequently Asked Questions