In the Budget 2016, George Osborne announced changes to Stamp Duty Land Tax (SDLT) rates for commercial property transactions:

Commercial property Stamp Duty Land Tax changes

  • – 0% rate on purchases up to £150,000
  • – 2% on next £100,000
  • – 5% top rate above £250,000
  • – There will also be a new 2% rate for high-value leases with net present value above £5m.
 

What are the likely savings?

From 17th March 2016, the new rates will apply to the value of property as it falls into each tax band. Previously, a flat rate of between 1% and 4% (depending on the value) was applied to the whole value of the transaction. As an example, for a property worth £300,000, the SDLT payable before 17th March 2016 would be 3% on the whole transaction, and therefore £9,000 would be payable. However, after 17th March 2016, the SDLT is calculated in bands:
  • £150,000 x 0% = £0
  • £100,000 x 1% = £1,000
  • £50,000 x 5% = £2,500
  • Total SDLT payable = £3,500
  The changes would have saved the purchaser £5,500 in tax.

SDLT changes provide a boost to small businesses

It is estimated that buyers of commercial property valued up to £1.05m will pay less in stamp duty as a result of the changes. This could provide a boost to small businesses wishing to invest in commercial property, as they will see their stamp duty tax greatly reduced. Commercial property lawyer, Tom Gibbons from Tallents Solicitors in Newark said:

“These changes bring the SDLT approach to commercial properties much closer to the graduated approach for residential property.

 “This could represent an opportunity for would-be investors who would be hit by the additional SDLT on second homes to move to invest in commercial property rather than residential, as the saving will be greater as a result of these changes – any investors used to buying residential property should seek specialist advice if they decide to move into commercial investments as there are several other issues which apply to commercial property which do not arise when investing in residential property.”

Positive news for SIPP investors

The changes have already received some positive reactions from pension fund trustees of SIPP and SSAS schemes, and they may help encourage business owners to consider (or re-consider) the merits of holding a commercial property investment through a pension scheme. Tom finished:

“As with any scheme changes however, there will be winners and losers – for higher value transactions above £1.05m, additional SDLT tax will be payable, although it is estimated that this will only affect around 9% of commercial property transactions.

 “It is expected that transitional rules will apply to transactions that have already exchanged contracts but have not completed by midnight on 16th March 2016.”

Tallents Solicitors can provide commercial property legal advice to buyers considering a property transaction. Please call 01636 671881 to make an appointment.