SDLT and commercial property – Still scope to exchange by midnight

Graham Chase, Tax Partner, CMS

From and including 17 March 2016, the calculation of SDLT on freehold and leasehold transactions in non-residential properties is changing. Purchasers (above the value threshold below) will see increases.

A new band system (mirroring the changes made in relation to residential property transactions) will apply. A different rate of charge will apply to the portion of the purchase price falling within the band.

The first £150,000 is exempt.

£150,001 to £250,000 – 2%

Above £250,000 – 5%

Therefore for most high value property transactions the effective rate is close to 5%. A significant increase on the existing 4% rate.

In addition, for leasehold transactions where the net present value of the rents exceeds £5 million, the rate is increased to 2% on the amount in excess of £5 million. Amounts under the £5 million remain exempt up to £150,000 and then are taxed at 1%. So again, a significant increase – this one for tenants.

These changes will not apply to (i) contracts competed before 17 March 2016, (ii) on election by the purchaser/tenant, to contracts entered into and substantially performed before 17 March 2016, or to (iii) contracts entered into before 17 March 2016 which are not (in summary) varied, assigned or sub-sold after that date.

An unexpected change. For transactions currently in hand there is always the possibility of seeking to exchange contracts before midnight tonight.

The accompanying Explanatory Note references that the effect is to change the basis of calculation, so as to eliminate the “cliff edge” increases which occurred under the old rules. All quite sensible of course, but in reality just a tax increase.

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