Policy paper

Tax information and impact note on Stamp Duty Land Tax: reform of charging provisions for non-residential property

Published 16 March 2016

Who is likely to be affected

Purchasers of non-residential property with an upfront payment worth more than £150,000 or a lease net present value of more than £5 million.

General description of the measure

The measure changes the rules for calculating the Stamp Duty Land Tax (SDLT) charged on purchases of non-residential properties and transactions involving a mixture of residential and non-residential properties. At present, for purchases of freehold, the assignment of an existing lease and for the upfront payment (premium) on a new leasehold transaction, SDLT is charged at a single percentage of the price paid for the property, depending on the rate band within which the purchase price falls. On and after 17 March 2016, SDLT will be charged at each rate on the portion of the purchase price which falls within each rate band. The new rates and thresholds for freehold purchases and leases premiums are:

Transaction Value Band Rate
£0 - £150,000 0%
£150,001 - £250,000 2%
£250,000 + 5%

For new leasehold transactions, SDLT is already charged at each rate on the portion of the net present value (NPV) of the rent which falls within each band. On and after 17 March 2016 a new 2% rate for rent paid under a non-residential lease will be introduced where the NPV of the rent is above £5 million.

The new rates bands and thresholds for rent paid under a lease are:

Net present value of rent Rate
£0 - £150,000 0%
£150,001 - £5,000,000 1%
£5,000,000 + 2%

Policy objective

This measure cuts the tax that many businesses pay when purchasing non-residential property, whilst ensuring those purchasing the most expensive non-residential properties make an important contribution to tackling the deficit.

Background to the measure

This measure was announced at Budget 2016.

Detailed proposal

Operative date

This measure will have effect on and after 17 March 2016. Where contracts have been exchanged but transactions have not completed before 17 March 2016 purchasers will have a choice of whether the old or new structure and rates apply.

This measure does not apply in Scotland as SDLT was devolved to Scotland on 1st April 2015. This measure will apply in Wales until 1 April 2018, when SDLT will be devolved to Wales.

Current law

The main SDLT legislation is in Part 4 of the Finance Act (FA) 2003. Section 55 provides for the amount of tax chargeable. It includes 2 tables which set out how the tax is to be charged: Table A applies where the relevant land consists wholly of residential property (section 55(1B) and (1C)) and Table B applies where the relevant land consists wholly of non-residential property or partly of residential and partly of non-residential property, ie a mixed transaction (section 55(2)). Section 56 and Schedule 5 FA 2003 provide for a separate SDLT charge on the net present value of the rent payable under a new lease.

Para 9A, Schedule 5 of FA 2003 provides that where the annual rent is £1000 or more, SDLT is charged at 1% on the whole of the premium up to £250,000 regardless of whether it is below the £150,000 non-residential threshold. The higher non-residential rates apply if the premium is more than £250,000.

Proposed revisions

Legislation will be introduced in Finance Bill 2016 to amend section 55 of FA 2003 to provide for a new method of calculating the amount of tax due in respect of transactions to which Table B (non-residential and “mixed” property) applies.

Amendments will also be made to Table B at paragraph 2 of Schedule 5 of FA 2003 to provide for an additional rate of 2% to be applied when NPV’s of the rent is above £5 million and to abolish para 9A, Schedule 5 of FA 2003.

The changes will have effect on and after midnight 17 March 2016 by virtue of a resolution under the Provisional Collection of Taxes Act 1968.

Summary of impacts

Exchequer impact (£m)

2016 to 2017 2017 to 2018 2018 to 2019 2019 to 2020 2020 to 2021
+385 +515 +535 +560 +590

Economic impact

This measure is not expected to have any significant macroeconomic impacts.

The costing takes into account impacts on the frequency of transactions. For transactions where the tax charge is lower than the previous SDLT system there is an expected increase in the volume of transactions, and for high-value properties adjustments for wider behavioural effects have been made. It also incorporates temporary behavioural effects around implementing the new system.

Impact on individuals, households and families

This measure will only affect those individuals and households who purchase non-residential property. The measure is not expected to impact on family formation, stability or breakdown.

Equalities impacts

This is a business measure and is therefore not expected to have an impact on any protected equality groups.

Impact on business including civil society organisations

There are approximately 100,000 non-residential and mixed property transactions per year.

All non-residential freehold and lease premium transactions worth less than £1.05 million will pay the same SDLT or less compared to the current system.

For leasehold rent transactions, those with a NPV of up to £5 million will pay the same in SDLT as under the current system.

As a result of these changes over 90% of non-residential property transactions will pay the same or less in SDLT.

This measure is expected to have a negligible administration impact on businesses. Businesses (lawyers and conveyancers) are expected to incur negligible one-off costs due to familiarising themselves with the new structure of SDLT. The process of automatically calculating the amount of tax will be fully integrated into HM Revenue and Customs (HMRC) online systems from April 2016. Before then HMRC is providing online calculators to reduce the administrative burden of the change in method to taxpayers. There may be an additional ongoing cost for the few businesses that do not file online. This is also expected to be negligible.

This measure is also likely to have a negligible administration impact on civil society organisations.

Operational impact (£m) (HMRC or other)

Changes will be required to HMRC IT systems including online tax calculators. In advance of the main systems changes HMRC will support customers by providing a standalone online calculator and online guidance to inform them of the change in the rules. The changes are estimated to cost approximately £110,000 for IT with some minor additional costs incurred in helpline staff time.

Other impacts

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be kept under review through communication with affected groups.

The measure will also be monitored and assessed through information collected from tax returns and communication with stakeholders and published as Official Statistics.

Further advice

If you have any questions about this change, please contact the HMRC SDLT Helpline on Telephone: 0300 200 3510.