SDLT changes for non-residential properties
Lauren Ellison from our Commercial Property Team looks at the latest changes to the rates of Stamp Duty Land Tax (SDLT) for commercial and non-residential properties.
As many are aware, the beginning of April 2016 saw an increase in the SDLT rates for those buying a second residential property either as a holiday home or for buy-to-let purposes.
As a result of the budget and with effect from 17 March 2016 changes to the SDLT rates for commercial and non-residential properties were also brought in, with the government trying to achieve a fairer “slice” system. Previously, when purchasing a commercial property the purchase price would dictate which “band” you fell in (and therefore the percentage at which you were taxed at) for SDLT purposes, with the percentage of tax payable increasing as you move up through the bands. Once you had agreed a purchase price you would then have to pay SDLT following completion of the transaction at the relevant percentage for that band on the entire purchase price.
Under the new regime the amount of SDLT is calculated differently and for sales and grants of leases of non-residential property the SDLT payable will be the same or less than it was under the old regime where the non-rental consideration (i.e. the capital consideration) is £1.05 million or less. For higher value transactions, the amount of SDLT payable will unfortunately increase under the new regime.
The new rates and tax bands for non-residential properties are:
- 0% for the portion of the transaction value up to £150,000
- 2% for the portion between £150,001 and £250,000
- 5% for the portion above £250,001
Under the new system, rather than paying a single percentage on the whole purchase price, you will now work your way through the bands, paying the percentage attributable to each band on the portion of the transaction value that falls within that band. Once you have exceeded a band, the next portion of the transaction value will be allocated to the next band, with that new percentage being attributable to that portion and so on.
For example, on a commercial property with a purchase price of £300,000, rather than being taxed at 5% for the whole purchase price (and paying £9,000 SDLT), you will instead be taxed at 0% for the first £150,000, at 2% for the next £100,000 and finally at 5% on the remaining £50,000 (therefore paying £4,500 SDLT overall – a nice saving of £4,500).
However, the new 5% bracket for properties of a value of £250,001 and above is a significant difference from the previous highest rate of 4% (applicable on transactions valued at £500,000 and above) and will significantly affect those involved in any transaction of a higher value as the amount of SDLT payable will have increased rather than fallen.
For any transactions that exchanged contracts before 17 March 2016 but have not completed there are transitional rules which will apply to ensure taxpayers do not lose out.
If you have any further queries in relation to the amount of SDLT that will be payable on a commercial or other non-residential property that you are in the process of acquiring or are looking to acquire, please contact Lauren Ellison or another member of our Commercial Property Team who will be happy to help.