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New stamp duty rates for commercial property in the UK

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Investors in larger commercial property in the UK see stamp duty rate hikes but small-scale property buyers will benefit from a reduction in the tax payable.

There has been a change in the way stamp duty on freehold commercial property and leasehold premium transactions is calculated. The rates used to apply to the whole transaction value but from 17th March new tax rates and bands come into force.

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

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. However, there is difference of opinion over the effect of the change.

It is not all good news – according to the British Property Federation (BPF). As BPF chief executive, Melanie Leech puts it, “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”.

She elaborates, “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 continues, “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”.

However, managing director of capital allowances tax specialists Catax Solutions, Mark Tighe, believes that the reduced stamp duty payable will drive demand in this key asset class in the future.

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.

Mark Tighe explains, “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 further says, “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”.

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Paul

The author Paul