George Osborne has reformed stamp duty for commercial properties by removing the ‘slab’ structure and replacing it with a simpler ‘slice’ system.
Following the 2014 Autumn Statement when he brought in the same measure for residential properties, the change means that when a commercial purchase passes a threshold, the higher rate applies to just the part that passes the threshold.
Speaking about the success of the residential stamp duty reform, the Chancellor said in his speech today: “As a result, 98% of homebuyers are paying the same or less and revenues from the expensive properties have risen. The IMF have welcomed the changes and suggest we do the same for commercial properties. That is what we are going to do, and in a way that helps our small firms.
“At the moment, a small firm can pay just £1 more for a property and face a tax bill three times as large. That makes no sense,” he said.
As detailed in a newly published policy document from HMRC, from 17 March the following transaction value band rate will apply:
- £0 – £150,000 = 0%
- £150,001 – £250,000 = 2%
- £250,000+ = 5%
There are transitional rules for purchasers who have exchanged but not completed before midnight tonight.
Osborne said in his speech: “These reforms raise £500m a year. And while 9% will pay more; over 90% will see their tax bills cut or stay the same.”
Charles Beer, managing director at Alvarez & Marsal Taxand, said the changes to stamp duty were an “unexpected shock” for the real estate market and likely to affect existing property values as well as prices.
Dr Neil Blake, head of EMEA research at CBRE, added that the changes would come as some relief to smaller property owners, but they were effectively a “tax grab” for the Chancellor to the tune of £500m: “A significant 15% increase in the tax take,” Blake said.
Philip Fisher of BDO agreed in his Budget blog post: “A simplification of stamp duty rates on commercial properties looks very much like another stealth tax, although it will help those buying properties worth up to just over £1 million.”
Lesley Stalker of RJP also commented during our live Budget chat: “Likely increase in SDLT on commercial property dressed up as a tax saving.”
For new leasehold transactions, stamp duty is already charged at each rate on the portion of the net present value of the rent which falls within each band.
From 17 March a new 2% rate for rent paid under a non-residential lease will be introduced where the NPV of the rent is above £5m.
The new rates bands and thresholds for rent paid under a lease are:
- £0 – £150,000 = 0%
- £150,001 – £5,000,000 = 1%
- £5,000,000+ = 2%
Neil Blake added that “Large scale residential investors will be disappointed that the hoped-for exemption from the additional 3% rate for buy-to-let investors has not materialised.
“In practice this means that larger scale purchases are likely to be taxed at the new commercial rate of 5%. This may affect the attractions of this sector for institutional investors,” he said.