Stamp Duty Land Tax Changes for Commercial Properties and Mixed Use Properties

21st March 2016
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Changes to Stamp Duty on Commercial Properties

It would be a small miracle if you have managed to avoid all of the discussions surrounding the recent changes to Stamp Duty Land Tax in terms of residential properties.

However, what came as much more of a surprise during the Budget 2016 were the implications for non-residential properties which were almost lost amongst all of the other announcements and had certainly not been anticipated.

changes to commercial property stamp duty land tax

The 2016 stamp duty changes to commercial properties will affect:

  • Purchasers of non-residential/mixed use property with an upfront payment worth more than £150,000; and/or
  • Purchasers of a lease with a net present value (calculated based on the length of the term and the rent payable) of more than £5,000,000.

Stamp Duty Land Tax Rates for Commercial Properties:

The Table below applies to freehold and leasehold non – residential and mixed use purchases and transfers. It shows the difference in the rates since 17th of March 2016.

Purchase Price/Lease Premium or Transfer Value

Rate Post 17 March 2016 Rates Pre 17 March 2016
£0 – £150,000 0% 0%
£150,001 – £250,000 2% 1%
£250,000 + 5% 3%
£500,000 + 5% 4%

As of the 17th of March 2016, Stamp Duty Land Tax will be charged at each rate on the portion of the purchase price which falls within each rate band.

Example:

If you buy a freehold commercial property for £275,000 the SDLT you owe is calculated as follows:

  • 0% on the first £150,000 = £0
  • 2% on the next £100,000 = £2,000
  • 5% on the final £25,000 = £1,250
  • Total SDLT £3,250

If you buy a new non-residential or mixed use leasehold property Stamp Duty Land Tax is payable on purchase price (as set out above) or the lease premium and also the net present value of the rent payable.
These are calculated separately and added together.

The new rates bands and thresholds for rent paid under a lease are set out below with a comparison as to what they were before the changes:

Net present value of rent Rates Post 17th March 2016 Rates Pre 17th March 2016
£0 – £150,000 0% 0%
£150,001 – £5,000,000 1% 1%
£5,000,000 + 2% 1%

Example

The NPV of the rent for a non-residential lease is £5,100,000. The SDLT due would be calculated as follows:

  • 0% on the first £150,000 = £0
  • 1% on the next £4,850,000 = £48,500
  • 2% on the next £100,000 = £2,000
  • Total = £50,500

When will changes to commercial property stamp duty take effect?

Where contracts have been exchanged but transactions have not completed before 17th of March 2016, purchasers will have a choice as to whether or not the new rates apply.

Why have the Government made changes to commercial property stamp duty?

The Government say that these changes cut the tax that many businesses pay when purchasing non-residential property, whilst also ensuring those purchasing the most expensive non-residential properties make an important contribution to tackling the deficit.

These changes without doubt give rise to new complications in relation to a transaction where a transaction taxed under the old rates structure may be linked with one which is to be taxed under the new structure and for certain types of lease transactions.