The government has announced significant changes to the SDLT regime that applies to commercial property transactions. For the vast majority of commercial real estate transactions, the new regime will be more expensive.
From 17 March 2016, the SDLT rates applicable to freehold and leasehold acquisitions will be applied on a “slice” basis, so that SDLT is payable on the proportion of the consideration that falls within each tax band. New rates also come into force, as follows:
0% on consideration up to £150,000;
2% on consideration between £150,001 and £250,000; and
5% on consideration in excess of £250,000.
In addition, the SDLT burden on grant of a lease at rent will increase, with the introduction of a new 2% charge applied to the net present value (“NPV”) of the future rental stream in excess of £5,000,000. (The previous 1% rate will continue to apply to that part of the NPV that does not exceed £5,000,000.)
As mentioned above, these changes will take effect from 17 March 2016, with transitional provisions applying to those transactions that have exchanged contracts before then. Generally, if exchange has taken place before 17 March, the old rules will continue to apply. However, it should be noted that anti-avoidance provisions can apply where contracts are modified or assigned after 16 March, so advice should be taken before any such modifications or assignments are undertaken.