What are the Effects of the Stamp Duty Changes on Commercial Property?

In his March 2016 Budget the Chancellor announced changes in Stamp Duty Land Tax (SDLT) for commercial property that took effect from midnight on 16 March 2016.

Commercial property has been left alone in recent years as the reform of stamp duty has focused instead on residential property.

The new SDLT rates on the purchase of commercial property (and new commercial lease premiums) are to be charged in slices (as with residential property and different from the "slab" approach used for commercial property to date) and the new rates that apply to the price payable for a property are:

Up to £150,000 – zero

The next £100,000 (the portion from £150,001 to £250,000) - 2%

The remaining portion above £250,000 - 5%

This means that transactions with a non-rent consideration of over £1.05 million will be subject to more SDLT under the new system than they were under the old system; whereas the buyers of lower- priced commercial properties will benefit from a saving resulting from the sliced calculation.

Here are some examples based on figures worked through the Government’s SDLT calculator

On a purchase price of £500,000 the new SDLT payable will be £14,500. The old SDLT payable was £15,000. A saving of £500.

On a purchase price of £1,000,000 the new SDLT payable will be £39,500. The old SDLT payable was £40,000. A saving of £500.

On a purchase price of £3,000,000 the new SDLT payable will be £139,500. The old SDLT payable was £120,000. An increase of £19,500.

On a purchase price of £15,000,000 the new SDLT payable will be £739.500. The old SDLT payable was £600,000. An increase of £139,000.

On a purchase price of £25,000,000 the new SDLT payable will be £1,239.500. The old SDLT payable was £1,000,000. An increase of £239,000.

As you can see, the effect of the change rises dramatically as you move up the scale of prices.

Old rates of SDLT will continue to be payable where contracts were exchanged before midnight on 16 March 2016.

For new commercial property leases you pay SDLT on the purchase price of the lease (the “lease premium”) using the rates above, and on the value of the annual rent you pay (the “net present value” (NPV)).

If you buy an existing (assigned) lease you only pay SDLT on the price.

The SDLT payable on the NPV has also changed.

The NPV is based on the total rent over the life of the lease. You don’t pay SDLT on the rent if the NPV is less than £150,000.

Net present value of rent	SDLT rate
£0 to £150,000	Zero
The portion from £150,001 to £5,000,000	1%
The portion above £5,000,000	2%

The Government website calculator will calculate these values for you.

At present there is a 30 days’ period of grace for paying SDLT following completion. From 1 April 2017 this period will be reduced to within 14 days of completion.