New stamp duty rates for commercial property in the UK announced

Investors in larger commercial property in the UK see a rise in stamp duty rates but buyers of smaller properties will benefit from a reduction in the tax payable.

The way stamp duty on freehold commercial property and leasehold premium transactions is calculated has changed. The rates used to apply to the whole transaction value but from today (17 March) new tax rates and bands come into force.

The new rates and tax bands are 0% for the portion of the transaction value up to £150,000, 2% between £150,001 and £250,000, and 5% above £250,000. It means that buyers of commercial property worth up to £1.05 million will pay less in stamp duty.

Stamp duty rates for leasehold rent transactions will also change, with a new 2% stamp duty rate on leases with a net present value over £5 million. Opinion over the effect of the change is divided.

According to the British Property Federation (BPF) it is not all good news. ‘Commercial property investment can often act as the catalyst for regional growth and as the economy has recovered investment has been spreading out from London to the UK’s regions, but will now undoubtedly slow,’ said Melanie Leech, BPF chief executive.

‘The real set back is that development in places like the Northern Powerhouse and Midlands’ Engine will now be held back as a result of this out of  the blue raid on commercial property transactions,’ she explained.

‘Over a decade ago, the Government of that time decided to decouple the commercial and residential rates of SDLT recognising that the sectors were driven by very different factors and there was no logic in charging the same rates of SDLT on commercial and residential property. We can only hope that today’s announcement isn’t any unravelling of that logic,’ she added.

However, Mark Tighe, managing director of capital allowances tax specialists Catax Solutions, believes that the reduced stamp duty payable will drive demand in this key asset class in the months and years ahead.
But he warned that the resultant increase in transactions, among both businesses and private individuals buying commercial property, will potentially cost billions as a largely unused tax relief is lost forever.
‘Capital allowances are a highly valuable tax relief available to owners of commercial property but under current legislation they are irrecoverable if they are not identified and realised at the point of sale,’ he explained.
‘Currently, very few commercial property owners, along with their accountants and lawyers, are aware of unused capital allowances tax reliefs. Therefore as transaction levels increase in volume and momentum, commercial property owners are set to lose significant tax rebates to the tune of thousands, tens of thousands or even hundreds of thousands of pounds,’ he added.