George Osborne has extended his radical stamp duty reform for residential property to the commercial sector; at the end of 2014 he scrapped the "slab" system for tax rates on home purchases. The reform, announced in his 2016 Budget, will apply from midnight on 17 March and will increase stamp duty on the highest value commercial property, while cutting it lower down.
Stamp duty now works like income tax. Rather than paying the same tax rate on the whole value of the property depending on which price bracket it falls into, the rates will only apply to the portion of the price that falls into it. Before, paying just £1 more on a property price could land you with a stamp duty bill thousands of pounds higher because it fell into a higher bracket.
The new rates will be 0% on the price between £0 and £150,000; 2% between £150,001 and £250,000; and 5% above £250,000. Osborne said the new system would raise an extra £500m a year and only 9% of transactions would end up paying more stamp duty than before.
"So, if you buy a pub in the Midlands worth, say, £270,000, you would today pay over £8,000 in stamp duty. From tomorrow you will pay just £3,000," Osborne told the House of Commons. "It's a big tax cut for small firms. All in a Budget that backs small business."
But the British Property Federation (BPF) called it a raid. "Commercial property investment can often act as the catalyst for regional growth and as the economy has recovered investment has been spreading out from London to the UK's regions, but will now undoubtedly slow," said Melanie Leech, chief executive of the BPF.
"The real setback in today's announcement is that development in places like the Northern Powerhouse and Midlands' Engine will now be held back as a result of this out-of-the-blue raid on commercial property transactions."
The previous stamp duty rates for commercial property were:
- Up to £150,000 - freehold or leasehold with annual rent under £1,000: 0%
- Up to £150,000 - leasehold with annual rent of £1,000 or more: 1%
- £150,001 to £250,000: 1%
- £250,001 to £500,000: 3%
- Over £500,000: 4%