Many of the Chancellor's spring budget announcements came as no big surprise, but there were exceptions which include the much discussed sugar levy, but another announcement – the changes to non-residential Stamp Duty Land Tax (SDLT) came out of the blue.
Not only did the changes to how SDLT will be calculated take many in the commercial property sector by surprise, they were implemented with immediate effect.
So what are the implications of George Osborne's SDLT revisions?
Up to 17 March, SDLT rates applied to the whole value of a commercial property transaction, so a purchaser was taxed for every pound spent. The changes bring in new rates and tax bands of zero per cent for the portion of the transaction value up to £150,000, two per cent between £150,001 and £250,000, and five per cent above £250,000.
In a nutshell, buyers of commercial property valued up to £1.05m will pay less in stamp duty.
For a commercial property purchased before 17 March 2016 on a £350,000 purchase the SDLT payable would have been calculated at £10,500. For a commercial property purchased after 17 March it would be £7,000.
There is a new 2% stamp duty rate on leases with a net present value over £5 million. For leasehold transactions, SDLT is already charged at each rate on the portion of the net present value (NPV) of the rent which falls within each band. From 17 March 2016 a new 2% rate for rent paid under a non-residential lease has been introduced where the NPV of the rent is above £5 million. Previously, a flat rate of 1% had been chargeable on the NPV of a lease. The new rates bands and thresholds for rent paid under a lease are:
(Net present value of rent)
£0 - £150,000 = 0%
£150,001 - £5,000,000 = 1%
More than £5,000,000 = 2%
Simply put, the SDLT changes will benefit the vast majority of businesses which pay SDLT and approximately nine per cent of those businesses which pay SDLT on the most expensive commercial property purchases, will pay more.
For small business owners seeking their own premises, the changes offer significant incentives to buy into the commercial property market.
In terms of changes to the way SDLT is calculated on transactions involving residential property, the key points from 1 April are as follows:
- Acquisitions of additional dwellings will suffer increased rates of SDLT.
- No exemption is given for large scale or portfolio investors
- An increase has been given to the time allowed for claiming a repayment, if a purchaser buys an additional dwelling before selling their main dwelling: they will have 36 months after buying the new property in which to dispose of their previous main residence and claim a repayment
- Joint purchasers all being subject to the additional rates, even where only one of them already owns a dwelling, with no apportionment for the ‘first time buyer’
- A requirement to pay the additional rates and claim a refund even if a prior main residence is sold after acquisition of the new residence but before submission of the SDLT return.
If you require advice relating to commercial property transactions, Wake Smith has a dedicated and experienced commercial property team which can help.
