Radical changes announced at the Autumn Statement to abolish the so-called ‘slab’ structure of stamp duty land tax on property purchases should be extended to commercial property to encourage investment by small business owners, a self-invested pension firm has said.
Xafinity Sipp and Ssas Services has called on the government to “radically” change the stamp duty system for commercial property and at least bring it in line with residential property, where a progressive system came into effect from December that concentrates tax take at the top end of the market.
The firm believes that, in common with the former residential system, the current ‘cliff face’ of stamp duty taxes for commercial property is unfair and acts as a barrier to SME owners purchasing commercial property.
Jeff Steedman, Xafinity’s head of business development, told FTAdviser the move could have significant economic benefits for the UK as it will boost commercial property investment at more moderate valuations.
Under changes announced in the Autumn Statement for residential property, the ‘cliff edge’ thresholds which meant the whole of, for example, a property worth £250,000 was taxed at 3 per cent while one worth £249,000 was taxed at 1 per cent, were removed.
Instead incremental taxes were introduced which apply only to the amount above each threshold, similar to income tax. Revised rates mean the tax bill on a £250,000 house is the same as the old regime, while at most values the buyer gains or pays the same up to around £925,000, when the taxman’s take rises steeply.
Commercial property taxes continue to be ‘slabbed’: with a zero rate on properties worth less than £150,000; 1 per cent on properties worth less than £150,000 where rent is more than £1,000 a month and those worth up to £250,000; 3 per cent up to £500,000; and 4 per cent thereafter.
Mr Steedman said: “Currently, the stamp duty costs are unfair and stacked against those at the lower end.
“I would even argue that there was a more pressing need to make the changes for commercial property as even the most casual observer will have seen the desperate need for significant investment in areas such as the High Street.”
Xafinity’s analysis of over 100 recent commercial property transactions showed that the average property value invested in its small self-administered scheme was £274,000 and for its self-invested personal pension it was £199,000.
This means that many properties are above or very near the biggest of the cliff face charges where stamp duty jumps from 1 per cent to 3 per cent.
According to Xafinity, around 30 per cent of Sipp and Ssas clients who bought properties in 2014 would benefit if a tiered system was adopted. A client who recently purchased their premises for £270,000 had to pay £8,100 in stamp duty, but under the residential rules would have paid £3,500.
Martin Tilley, director of technical services at Dentons Pension Management, said that he would also welcome the simplification and potential reduction of stamp duty on commercial property.
“However, if we are looking at SDLT review for commercial property, I’d suggest something that needs to be reviewed and amended is the charging of SDLT on VAT; this is a tax on a tax and to anyone with a sense of fairness looks anomalous.”
Scotland’s Budget already proposed to replace the current stamp duty land tax with land and buildings transaction tax from April this year.
This will mean that unlike SDLT, where once a threshold is reached the entire transaction price is subject to the full rate, LBTT rates apply only to the portion of the transaction price falling in each band.
Those buying Scottish properties that cost less than £324,000 will save money, while homes over £1m will pay an equivalent of a marginal top rate of 12 per cent stamp duty land tax, as opposed to the 7 per cent for homes worth over £1m under the existing UK system.
peter.walker@ft.com
