Commercial Property Stamp Duty, new rates introduced
On Wednesday 16 March in his budget, the Chancellor announced a change in the way SDLT is to be calculated in relation to commercial property purchases and the granting of commercial property leases. This change will ultimately affect anyone who is planning to purchase a commercial property above £150,000 or will be entering into a lease with a net present value above £5m.
New stamp duty land tax (SDLT) rates introduced in the budget will result in savings for a large number of commercial property transactions, but high value transactions could end up costing significantly more in tax with the purchase price overlap coming in at around £1.05m.
Tom Furneaux, Trainee Legal Executive within the Commercial Property team explains the impact the new SDLT rates will have on commercial property transactions.
On Wednesday 16 March in his budget, the Chancellor announced a change in the way SDLT is to be calculated in relation to commercial property purchases and the granting of commercial property leases. This change will ultimately affect anyone who is planning to purchase a commercial property above £150,000 or will be entering into a lease with a net present value above £5m.
Under the old system for calculating the tax due on a commercial property purchase, SDLT was calculated on a single percentage point basis, otherwise known as a ‘slab system’. So, if you purchased a commercial property for £375,000 you would have paid SDLT at 3% totalling £11,250. The 3% charge applied to all commercial property within the price bracket of £250,001 - £500,000.
The new system alters this by bringing in a ‘slice system’ as is now used for residential purchases. Commercial property SDLT will be calculated based on the relevant percentage applicable to the ‘slice’ of the price which falls within any given bracket, as shown in the table below.
Purchase Price Bands | Rate of SDLT |
£0 - £150,000 | 0% |
£150,001 - £250,000 | 2% |
Above £250,001 | 5% |
So, for example, using the new system, if you purchase that same commercial property for £375,000 on or after the 17th March 2016 you would pay only £8250 in tax – ie around 27% less. How the amount of SDLT is calculated based on this example is shown in the table below:
Purchase Price Bands | Rate of SDLT | Amount of SDLT Due in each band based on £375,000 purchase price |
£0 - £150,000 | 0% | £0 |
£150,001 - £250,000 | 2% | £2000 |
Above £250,001 | 5% | £6250 |
Total Amount of SDLT due | £8250 |
It is imperative that you speak to your legal adviser about your liability for stamp duty land tax on any transaction, especially one which is in the course of exchange/completion, to ensure you have a clear understanding of how your transaction will be affected by the new rates. You should also be aware that if SDLT is underpaid or the relevant return is filed late, fines and penalties can quickly mount up.
For further information on this or any other commercial property legal issue, contact our commercial property team
