In one of his announcements during Wednesday’s budget speech, Chancellor George Osborne spoke about the reform he plans to make to Stamp Duty Land Tax for commercial properties. The changes will bring stamp duty for all commercial properties in line with the changes made last year to taxation on residential homes; going from a ‘slab’ to ‘slice’ system.
In the previous ‘slab’ system, one tax rate was due on the entire transaction value. The new ‘slice’ structure means instead of paying stamp duty on the entire property price, different bands exist based on the value of the property with each portion having a different rate of tax to pay – much in the same way that income tax works.
So, to put that more visually:
| Transaction Value | New Stamp Duty Tax Rate |
| £0 – £150,000 | 0% |
| £150,001 – £250,000 | 2% |
| £250,000 and above | 5% |
There will also be a new 2% rate for leasehold rent transactions where the net value is above £5 million starting from the 1st April 2016.
Raising Revenue from Commercial Property whilst Cutting Stamp Duty for Many
The new 5% rate for properties worth £250,000 and above is a 1% increase in the highest rate of stamp duty paid on non-residential properties previously. Combine this with the increase in certain leases as mentioned above, and the treasury is estimated to raise around £2.5 billion over the next half a decade.
This doesn’t necessarily mean price rises for everyone however. Within the 148 page Budget document it says the new reforms will ‘cut the tax for many businesses purchasing property’. The new banded structure means that all freehold and leasehold premium transactions below £1.05 million will pay the same or less in stamp duty, which is around 90%; only 9% will pay more according to the government’s calculations.
The changes are supposed to be more favourable for smaller businesses that purchase less expensive properties, whilst those purchasing the highest value freeholds and leases will make a larger contribution. The increase in duty on new leases where the net value is over £5 million could mean that larger businesses accelerate towards a trend of shorter leases.
When are the changes being introduced?
They have already come into effect!
All the changes highlighted above will take effect from the 17th of March 2016. If you have already exchanged contracts on a transaction but not completed, transitional rules will ensure you don’t pay more in tax.
You can speak to one of our highly experienced Commercial Property lawyers today whether it is about a purchase or a sale for your business on 0161 930 5151 or fill in our online contact form and we will call you back.