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SDLT – Summary of 2016 Budget changes for corporate and commercial purchasers

New non-residential SDLT rates

The old “slab” system was abolished for non-residential properties, as it was for residential properties in late 2014.  The new rates, which took effect on 17 March, are:

  • 0% up to £150k
  • 2% for £150k to 250K
  • 5% on the balance.

This means transactions below (approximately)  £1m will benefit from lower SDLT liabilities. Purchases above that figure will cost more in SDLT. “Grandfathering” for purchasers who exchanged contracts before 17 March will enable them to chose whether to apply the old rates or the new ones, if they complete on or after 17 March, but only if they don’t vary, assign or novate the contract and do not enter into a sub-sale contract on or after 17 March.

New non–residential SDLT rates on rent

SDLT on rent is calculated as a percentage of the net present value (NPV) of the rental stream throughout the lease. New rates of SDLT on the NPV of the rent under leases of non-residential property are:

  • 0% on the first £150,000 of NPV
  • 1% from £150,000 to £5m of NPV
  • 2% on the balance over £5m.

The £1,000 p.a. “relevant rent” rule is abolished so, for grants of leases, the £150,000 0% bands are now available on both the premium (if there is one) and on the NPV of the rent.

3% SDLT surcharge on additional residential properties

For corporate buyers the new 3% surcharge on acquisitions of “additional residential properties” is really a SDLT rate increase for all purchases of dwellings. The normal and new surcharge rates are:

Normal residential rates Surcharge SDLT rates
£0* – £125k 0% 3%
£125k – £250k 2% 5%
£250k – £925k 5% 8%
£925k – £1.5m 10% 13%
£1.5m + 12% 15%

Changes were announced to the proposals published by the Treasury on 28 December 2015. In particular, no special reliefs are available for large scale investors or developers. The only ways for companies to mitigate the increase are either:

  • to buy six or more dwellings in a single transaction. Companies doing this can choose whether to treat the purchase as non-residential (top rate 5% – see above) or to claim multiple dwelling relief; or
  • to buy two or more but fewer than six dwellings and claim multiple dwelling relief; or
  • to buy the dwelling with other non-residential property, for example a country house with agricultural property or a high street shop with a flat in the upper part. (Mixed purchases are treated as wholly no-residential and taxed at the new non-residential rates.)

Subject to these three bullet points, there are now two SDLT rates for companies buying dwellings: the 15% fixed penal rate (for those who cannot claim any of the penal rate reliefs) and the 3% surcharge rate (for those who can). Ordinary reliefs such as housebuilder part-exchange relief, group relief and charity relief remain available.

The 3% surcharge affects deals completing on or after 1 April. Those who exchanged contracts before November 26 2016 and complete on or after 1 April will pay SDLT at the normal rates, but only if they don’t vary, assign or novate the contract and do not enter into a sub-sale contract on or after 26 November.

15% penal rate SDLT – new conversion or demolition relief

As announced in the 2015 Autumn Statement, this relief from the 15% penal rate  will be available from April 1 on purchases of dwellings for more than £500,000 acquired exclusively either for:

  • conversion into non-residential use for the purposes of a trade, or
  • for permanent demolition in preparation for using the land for the purposes of a trade.

 The trade must be carried on with a view to profit on a commercial basis.  The relief will be clawed back if, either:

  • the property is used as a dwelling during the three years after the transaction, unless the buyer no longer has an interest in it, or
  • conversion or demolition has not begun by the end of the three years.

This new relief supplements the existing penal rate relief for developers, which is not available when there is no intention to sell the developed product.