The chancellor’s changes to commercial property taxes have been welcomed by self-invested pension providers but criticised by letting agents.
HM Treasury’s Budget explanation document stated the existing slab system of stamp duty on non-residential property transactions creates distortions in the market and leads to large increases in the tax bill as transactions move into higher tax bands.
These rates will be reformed to a slice system, so that stamp duty is payable on the portion of the transaction value that falls within each tax band.
The new rates will be 0 per cent for the portion of the transaction value between zero and £150,000; 2 per cent between £150,000 and £250,000; and 5 per cent for property worth more than £250,000.
This means that all freehold and lease premium transactions below £1.05m will pay the same or less stamp duty.
The government will also introduce a new 2 per cent rate for leasehold rent transactions where the net present value is more than £5m.
These transactions are already taxed on a slice basis and all leasehold rent transactions up to £5m will remain unaffected.
These changes will take effect from midnight tonight (16 March).
For transactions which have already exchanged contracts but not completed when the changes come into force, transitional rules will ensure taxpayers will not lose out.
Melanie Leech, chief executive of the British Property Federation, commented: “Over a decade ago, the government of that time decided to decouple the commercial and residential rates of SDLT recognising that the sectors were driven by very different factors and there was no logic in charging the same rates of SDLT on commercial and residential property.
“We can only hope that today’s announcement isn’t any unravelling of that logic.”
However, self-invested personal pension providers welcomed the move, with Dentons Pension Management’s director of technical services Martin Tilley pointing out that it will make the purchase as investment of commercial property within both Sipps and Ssas’s less expensive.
Greg Kingston, head of marketing at Suffolk Life, agreed that it should raise awareness of the opportunity amongst investors.
“Industry figures suggest that fewer than 3 per cent of all commercial property transactions are made by Sipps – this figure should now start to grow following this Budget.”
Jeff Steedman, head of Sipp and Ssas business development, added: “These changes to Stamp Duty will reduce the costs for clients selling their own premises to their pension plans or indeed purchasing new premises to expand and grow their businesses.”
John Phillips, group operations director of Spicer Haart and Just Mortgages, pointed out that Mr Osborne also re-stated the residential stamp duty reforms that will come into force next month and confirmed that large investors with more than 15 properties in their portfolios will be covered.
“However, until real measures are taken and building activity increases substantially, the long-term issue around demand for houses and the lack of housing supply means affordability will remain a significant challenge,” he argued.
Jeremy Leaf, a former RICS chairman and north London estate agent, added: “As it stood, the 3 per cent stamp duty hike from April unfairly favoured larger investors at the expense of smaller landlords.
“In announcing that the new stamp duty rates on additional properties will apply to larger investors too, the chancellor has balanced it so it is not helping either group, but in doing so he is compromising the chances of improving supply.”
Doug Crawford, chief executive of My Home Move, said the changes are a step in the right direction, but arrive too late in the day for many of our customers.
He said: “Some of our clients have faced a huge conundrum on whether to proceed with a purchase because they could not be certain of completing before the change.
“Being able to reclaim the tax is one thing, but many buyers are not in the position to proceed with a purchase at the higher rate in the first place.”
peter.walker@ft.com
