Partner Katja Wigham, in our Commercial Property team, explains recent Stamp Duty Land Tax (SDLT) changes for commercial property.
As announced in the 2016 Budget, the Stamp Duty Land Tax (SDLT) rates structure for sales of and grants of leases in, non-residential and mixed property was changed with effect from 17 March 2016 (subject to transitional rules). The effect of the changes will be that, for sales of non-residential or mixed use property, the same or less SDLT will be payable if the non-rental consideration is £1.05 million or less. However, for higher value transactions, the SDLT charge will increase. For leases with a net present value of over £5 million a new 2.0% rate has been added.
For sales, the new rates structure adopts the fairer "slice" system under which that part of the entire consideration falling within a particular band is taxed at the rate applicable to that band (the slice system already applies for rent consideration). This replaced the former "slab" system under which SDLT was levied at a single rate on all the chargeable consideration for the transaction.
| Property or lease premium or transfer value | SDLT rate |
| Up to £150,000 | Zero |
| The next £100,000 (the portion from £150,001 to £250,000) | 2% |
| The remaining amount (the portion above £250,000) | 5% |
Example:
If you buy a freehold commercial property for £275,000, the SDLT you must pay is calculated as follows:
- 0% on the first £150,000 = £0
- 2% on the next £100,000 = £2,000
- 5% on the final £25,000 = £1,250
- Total SDLT = £3,250
On the grant of a new commercial lease, the charge to SDLT is based on the VAT inclusive rent (where actually payable), calculated by reference to the Net Present Value. The calculation is complicated, but the 2016 regime has now introduced a 2.0% rate to SDLT where the NPV exceeds £5 million as per the table below.
| 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% |
Although the introduction of the “slice” system is arguably fairer than the old “slab” system, thereby reducing the liability to SDLT in the case of lower value transactions, higher value transactions will be caught by a higher charge to SDLT.
For further information or legal advice, please contact law@blandy.co.uk or call 0118 951 6800.
This article is intended for the use of clients and other interested parties. The information contained in it is believed to be correct at the date of publication, but it is necessarily of a brief and general nature and should not be relied upon as a substitute for specific professional advice.
