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Chancellor Overhauls Commercial Property Tax

Chancellor Overhauls Commercial Property Tax

Commercial Property in London

Major changes are being introduced to stamp duty land tax on commercial property, the Chancellor announced in Wednesday’s Budget speech.

George Osborne said that the reforms cut charges on most transactions but raise them for properties costing more than £1.05m.

The stamp duty on commercial property will have a zero rate band on purchases up to £150,000; a 2% rate on the next £100,000; and a 5% top rate above £250,000.

The changes took effect at midnight on March 17th. For those transactions which had already exchanged contracts but had not completed when the changes come into force, transitional rules will ensure taxpayers will not lose out.

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 £5m. These transactions are already taxed on a ‘slice’ basis.

Chancellor: ‘It’s a big tax cut for small firms’

The Chancellor says the measure is meant to provide a boost for small businesses considering property purchases.

Mr Osborne said: ”At the moment, a small firm can pay just £1 more for a property and face a tax bill three times as large. That makes no sense.”

The Chancellor continued: “If you buy a pub in the Midlands worth £200,000 today you will pay over £8,000 in stamp duty. From tomorrow, you will pay just £3,000. It is a big tax cut for small firms all in a Budget that backs small businesses.”

Changes welcome to SIPP and SSAS members

The changes are set to benefit people who hold commercial property in Small Self Administered Schemes (SSAS) and Self Invested Personal Pensions (SIPP).

The overhaul means it is more affordable for those wanting to invest in a time when contributions are being limited by the annual allowance and lifetime allowance. For example, a property valued at £260,000 would pay £7,800 before the changes but this will now drop to £2,500.

Dismay in commercial property sector

The British Property Federation (BFP) described Mr. Osborne’s reforms as an “out of the blue raid on commercial property transactions”, while one commercial property agency said it came as the market was already plagued by uncertainties. It said the higher top rate would damp regional growth, as it made buying assets more expensive.

“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,” said BFP chief executive Melanie Leech.

“The real set back in today’s announcement 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,” Ms. Leech added.

Elsewhere, the overhaul has been described as the most significant change to stamp duty on commercial property for a decade. It has been suggested that the top rate could cause difficulties for the higher end of the market and that transactions could be delayed.

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So whether you are acquiring, disposing of, developing, managing or funding commercial property, we can help. Call us now for expert, impartial and professional advice on 01895 207285, or email us at CRE@ibblaw.co.uk.


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