In a completely unexpected move, the government has introduced a major change to the stamp duty land tax (“SDLT”) charging provisions applicable to purchases of non-residential (and mixed) properties. The reform will take effect from midnight tonight (17 March 2016), with grandfathering provisions for contracts exchanged before then.
SDLT on freehold and leasehold premium transactions will now be charged on a ‘slice’ system, as is currently applicable to purchases of residential property. At the moment, on commercial property transactions, SDLT is charged at a single rate on the entire purchase price (depending on the rate band that the purchase price falls into e.g. 4% if above £500,000). With effect from 17 March 2016, SDLT will be charged at each rate on the proportion of the purchase price that falls within the relevant rate band.
The reform also introduces new rates and thresholds for freehold and leasehold premium transactions, which are summarised in table A below.
A. Freehold/Leasehold Premium - SDLT rates from 17 March 2016
Click here to view table.
At present, the highest SDLT rate for non-residential property transactions is 4%, which applies if the transaction value is above £500,000. The changes coming into effect will result in an effective increase of 1% to the SDLT rate chargeable on commercial property transactions as well as in a reduction of the threshold to £250,000 at which the highest rate bites.
The ‘tipping point’ at which purchasers will be worse off under the new rates will be where the transaction value exceeds £1,050,000.
The government has also introduced changes to the rates and thresholds applicable to the net present value (“NPV”) of leasehold rent transactions. These are already taxed on the ‘slice’ system. The changes are summarised in table B below and effectively result in a doubling of the amount of SDLT payable on higher value leases (i.e. with an NPV above £5m).
B. Leasehold Rent - SDLT rates from 17 March 2016
Click here to view table.
Currently, SDLT on leasehold rent transactions is chargeable at 1% on the proportion of the NPV above the first £150,000.
The government’s policy objective behind these changes is to cut the tax that many businesses pay when purchasing non-residential property, whilst ensuring that those purchasing the most expensive non-residential properties make an important contribution to tackling the deficit.
HMRC’s online SDLT calculators appear to have already been updated to take into account the changes coming into effect from 17 March 2016 but we would advise purchasers to be extra cautious when working out the rates applicable to their transactions.”
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