As part of the latest Budget in March 2016, the Government introduced changes in the way Stamp Duty is calculated for commercial properties. These changes reflect the system established back in December 2014 for residential properties, ensuring that buyers would be taxed only for the balance above a fixed tax-free band.
Before the 2014 change, buyers would pay no Stamp Duty on properties valued £125,000 and less, but would pay a flat tax of 1% on the entire cost of any property exceeding this value. For instance, a residential property in Southend worth £200,000 would incur a tax of £2,000.
Under new rules, £125,000 would be exempt no matter the value of your property, and you would be taxed a percentage only on the balance exceeding it. That percentage applies depends on the value of the property, but is 2% for example, on properties worth between £125,001 - £250,000. Applying this new system to the example above, would incur a revised Stamp Duty of £1,500 i.e. 2% of £75,000.
How is Stamp Duty Applied to Commercial Property?
The proposed changes will broadly follow those made to residential properties. The most prominent difference between the two however is the tax exemption rate, which is £150,000 for commercial property. Here is an overview of the changes that came into force from 17 March 2016:
- 0% tax for portion of transaction up to £150,000
- 2% between £150,001 and £250,000
- 5% above £250,000
This means that if you bought a commercial property in Rochford for £170,000 back in February of this year, you would have paid 1% Stamp Duty on the whole price, a total of £1,700. However, if you bought it in April, after deducting the tax-free £150,000 you would only pay 2% of the £20,000 balance, which is only £400.
Have the Stamp Duty changes piqued your interest in investment? If you have been encouraged to pursue commercial property opportunities or are looking to move premises, our experienced property solicitors can offer a comprehensive service and answer any important questions regarding these new regulations. Get in touch with our commercial conveyancing experts on 01702 477106 and we can help give you an accurate estimate.