The budget and SDLT changes

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Increases to commercial property rates

The announcement in the budget that non-residential rates would rise from midnight caught most people unaware.  There was never a particular reason for the disparity between the “slice” system for residential property and the “slab” system for non-residential property, and this distinction has now been abandoned.

Not only did the budget do away with the slab system, but it introduced a new higher rate of SDLT of 5% for non-residential transactions.

The new rates are as follows:

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%

Commercial leases that reserve a high rent or are for a long term may also attract a higher rate of SDLT.

Details confirmed for SDLT on Additional Properties and for CompaniesSDLT Surcharge

The additional 3% levy for individuals buying an “Additional Property” has been the subject of a significant amount of interest for our clients.  Our article about the SDLT consultation attracted a huge response, although any responses submitted to HMRC seem to have been largely ignored.

There are only two changes that appear to have been made to the new rules which come into effect on 31 March 2016.  Firstly, if someone is not able to sell their main residence immediately they will now have 36 months rather than 18 months in which to reclaim the additional 3% levy.  Secondly, the proposal that individuals owning more than 15 properties will be exempt from the levy has been dropped.  The exemptions from the 3% levy are almost non-existent and will affect a huge number of our clients.

The following rates will apply to individuals buying an “Additional Property” (i.e. residential dwelling) and to companies buying a residential dwelling (unless the 15% rate applies):

Property or lease premium or transfer value Higher SDLT rate
Up to £125,000 3%
The next £125,000 (the portion from £125,001 to £250,000) 5%
The next £675,000 (the portion from £250,001 to £925,000) 8%
The next £575,000 (the portion from £925,001 to £1,500,000) 13%
The remaining amount (the portion above £1,500,001) 15%

Warning: The 15% rate still exists

What has not altered is the “higher rate” or 15% tax for companies that are paying over £500,000 for residential properties where the development or trading exemption does not apply.  A company paying over £500,000 for a residential property for occupation by one of its Directors would still pay SDLT at 15% on the entire purchase price.

The rates mentioned above (i.e. subject to the additional 3% surcharge) will only apply to companies who acquire the property (a) in the course of a property rental business or (b) in the course of trading or redeveloping properties.