13 May 2016

The new era for Stamp Duty Land Tax in the Commercial Property arena

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By Andrew Nicholson

After a record-breaking year in 2015, which saw commercial property investment in the UK reach a figure just shy of £65 billion (a 4% increase on 2014), George Osborne indicated that he would be imposing a Stamp Duty Land Tax (SDLT) increase on the commercial property sector.

The Chancellor has introduced three significant reforms:

1. The “slab” system has become the “slice” system:

Under the old regime, even if a price for a property overstepped an ADLT threshold by £1, the whole amount would be subject to the higher rate’s percentage. The new system will work much like residential property where the higher rate is payable only on the amount that falls within the band.

This new system was coupled with revised rates of tax:

  • £0-£150,000 at 0%;
  • £150,001 – £250,000 at 2%; and
  • £250,001+ at 5%.

Whilst the new “slice” system is likely to be viewed as beneficial, it is certainly arguable that these proposals are primarily designed to favour smaller investments in commercial property. An investment of more than £1.05 million will be subject to increased amounts of SDLT; an investment of £2 million will incur an SDLT charge some 12% higher than would apply under the old regime.

2. A new SDLT rate on leasehold transactions

Where the “Net Payable Value” (the value payable over the whole term of the lease) exceeds £5 million, a new 2% rate band has been introduced. Prior to this, the highest rate was capped at 1% for NPVs exceeding £150,000.

3. The ‘£1,000 rule’ will no longer apply

Under the old regime, where the annual rent of a lease was more than £1,000, purchasers could not benefit from the 0% threshold on premiums paid for the grant of the lease.

The new regime has abolished this rule and so purchasers can now benefit from the 0% threshold for both the premium and rental elements of a leasehold transaction. Hence, purchasers are not required to pay SDLT on the premium for annual rents of £1,000 or more if the premium is under the £150,000 non-residential threshold.

A version of this article appeared in Business East on 19 April 2016.

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