Commercial Property New Stamp Duty Changes – Equity and Capital

The Government has announced a reform of Stamp Duty Land Tax (SDLT) for commercial property in today’s budget.
As part of his revenue raising budget, Osborne declared a 1% increase in the highest rate of SDLT on commercial property. This combined with an increase in duty on certain leases, is expected to raise approximately £2.5bn over the next five years on commercial property transactions. The increase has come as an “unexpected shock” for the real estate market and will affect existing property values.
Even more of a surprise was the increase in duty on new leases where the net present value of rents on grant is over £2m. Large businesses who take such leases will now be presented with a 2% charge on that value, and a 100% increase on the existing charge. This may accelerate the trend to shorter leases on commercial property.
Large scale residential investors will be disappointed that the hoped for exemption from the additional 3% rate for buy-to-let investors has not materialised. In practice this means that larger scale purchases are likely to be taxed at the new commercial rate of 5%. This may affect the attractions of this sector for institutional investors.