[author: Deirdre Lyons Le Croy]

Stamp duty land tax – Reform of charging provisions for non-residential property

In his Budget 2016 speech, the Chancellor announced changes to the rules for calculating the stamp duty land tax (SDLT) charged on purchases of commercial properties, as well as transactions involving a mix of residential and commercial properties. From 17 March 2016, SDLT will be charged on a new ‘slice’ approach, in place of the previous ‘slab’ system. This approach means that SDLT on commercial properties will be charged at a rate on the portion of the purchase price which falls within each of the three new rate bands, unlike the previous system where the rates applied to the whole transaction value. This change brings the calculation of SDLT on commercial properties in line with the method already used to calculate SDLT in residential transactions.

Summary

To date, SDLT has been charged at a single percentage of the price paid for the property for freehold purchases, the assignment of an existing lease, and for the premium on a new leasehold transaction. This single sum was determined by the rate band within which the purchase price fell.

New value bands

From 17 March 2016, the following transaction value bands apply to freehold purchases and leasehold premiums:

• £0 to £150,000: 0%
• £150,001 to £250,000: 2%
• £250,000 and over: 5%

Further, from 17 March 2016, the Government doubled the rate of SDLT on commercial leases to 2% where the net present value of the rent exceeds £5m. The new rate bands are:

• £0 to £150,000: 0%
• £150,001 to £5,000,000: 1%
• £5,000,000 and over: 2%

Guidance

The government has produced guidance on the new transaction value bands. As well as outlining the new rates rules, the guidance provides examples on how the bands are to be applied.

To access the guidance, please click here.

Higher rates of SDLT on purchases of additional residential properties

From 1 April 2016, higher rates of SDLT will be charged on purchases of additional residential properties, including buy-to-let properties. The higher rates will be 3% above the current SDLT rates and will apply unless a main residence is being replaced. The replacement of a main residence test now uses three-year time limits, rather than the 18 months suggested in the initial consultation, and there will not be the proposed exemption for large scale investors.

Higher rates of SDLT on additional residential properties form part of the government’s Five Point Plan for housing, and the government’s commitment to supporting home ownership and first-time buyers

Around 10% of residential property transactions are expected to be subject to the higher rates.

To provide for the higher rates of SDLT, legislation will be introduced in the Finance Bill 2016 to insert a new section 56A and Schedule 5A into the Finance Act 2003.

This measure will have effect for purchases which complete on and after 1 April 2016 (excluding where contracts have been exchanged on or before 25 November 2015 but not completed until 1 April 2016 or after).