New UK Commercial Stamp Duty Rates Revealed

By HopwoodHouse, 26 April, 2016

The new rates of stamp duty for buyers of commercial properties in the UK have been revealed. The changes to the rates will see buyers of larger properties paying more in stamp duty, while those who purchase smaller properties benefit from a decrease in their land tax bills.

The reforms to commercial stamp duty take the form not just of changes to existing rates, but the introduction of entirely new bands. Perhaps the most significant change is the introduction of a new 0% band, meaning that stamp duty is no longer levied on the full value of a commercial property purchase.

Stamp duty is now set at 0% for the first £150,000 of a commercial property's value. For the portion valued between £150,001 and £250,000, stamp duty is levied at 2%. On the value of a property that exceeds £250,000, the rate is 5%. There have also been changes to stamp duty levied on leasehold rental transactions, with a new 2% stamp duty rate introduced on leases with valued over £5 million net.

The effect of this shake-up of rates and bands is that the stamp duty bill will rise on higher-value commercial properties, but fall on lower-value ones which will gain proportionally more benefit from the new 0% band. The overall stamp duty charge will be lower under the new system for properties with a value of up to £1.05 million.

Reception for the reforms has been mixed. While the effective tax-break for smaller-scale commercial property investors has generally been welcomed, some analysts have expressed concerns about the impact that the increase in land tax for higher-value purchases may have on overall investment volumes.

The British Property Federation has expressed concerns, with chief executive Melanie Leech saying that investment “will now undoubtedly slow.” Leech suggested that regional growth may be hit by the increase in land tax for higher-value transactions, pointing to the Northern Powerhouse and Midlands Engine initiatives that are driven in no small part by large-scale investment from institutions and businesses.

Others, such as Catax Solutions managing director Mark Tighe, have taken the opposing view that the lower rate on transactions worth under £1.05 million will serve to drive an increase in demand. Tighe did express some reservations about the changes, but this was not about a drop in demand but rather a potential consequence of an increase in demand which, he believes, could cost billions in tax.

“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 said.

Tighe continued: “Currently, very few commercial property owners... are aware of unused capital allowances tax reliefs. Therefore as transaction levels increase... 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.”

Javeed Baig is the Managing Director and Senior Accountant at Gower Accountancy, specialist accountants Leicester.