SDLT changes


Author: Gavin Whitney


Introduction

There have been quite a few changes to the Stamp Duty Land Tax (SDLT) regime in the past few years but most of these have focused on residential property.  However, the March 2016 Budget has introduced some significant changes for buyers and tenants of commercial property as well.

From “slab” to “slice”

Purchases of commercial property will now, like residential property, pay SDLT based on a “slice” system.  This means that, for example, going just £1 over the threshold does not now mean that the whole sum is then payable at the higher tax threshold, just the excess which falls within that threshold.

The new bands are set out below:

Consideration SDLT rate
£0 – £150,000 0%
£150,001 – £250,000 2%
£250,001 + 5%

There are winners and losers with these changes.  Generally, higher value transactions will pay more tax and lower value transactions will pay less.

Leases

There was already a slice system in place for leases of commercial property but this has also been changed following the Budget.  There is now a new 2% SDLT rate for leases with a net present value of over £5 million.  The 1% rate will continue to apply to the first £5 million, with the 2% rate only applying to the excess.

Net present value SDLT rate
£0 – £150,000 0%
£150,001 – £5m 1%
£5m + 2%

The rent will have to be large or the term very long to qualify for the 2% rate but tenants will need to consider the additional tax where this is the case.

Conclusion

Tax on commercial property remains a complicated area, and buyers and tenants should always consult with their professional advisers on the likely tax bill associated with any new purchase or lease.  However, in certain circumstances there may be less SDLT to pay on a transaction as a result of the changes in the latest Budget.

Gavin Whitney, Partner, Fladgate LLP (gwhitney@fladgate.com)

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