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Big changes to the Stamp Duty system have been revealed by the Chancellor, who claims that 90% of purchasers will pay either the same or less tax.

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  • The Government announced an overhaul of Stamp Duty rates for commercial property in the 2016 Budget. It's a move that will benefit small businesses but could hurt big property companies.

    What are the changes?

    The reforms will see the old ‘slab’ Stamp Duty system, replaced by a progressive system, similar to the one now used for residential property.

    Under the news rules, no tax will be charged on the first £150,000 paid for a commercial property, with a rate of 2% charged on the purchase price between £150,000 to £250,000, and Stamp Duty of 5% charged on the value above £250,000.

    When does it come into force?

    The new system comes into effect from today, but transitional arrangements have been put into place for buyers that have already exchanged contracts, but not yet completed on the deals.

    Who benefits from the change?

    The Chancellor, George Osborne claims more than 90% of purchasers will pay either the same or less Stamp Duty under the new system.

    He cites small businesses that buy their premises as being the main winners, claiming that someone who bought a pub in the Midlands for £270,000 would pay just £3,000 in Stamp Duty following the changes, compared with £8,000 under the old system.

    Who are the main losers?

    But 9% of buyers will face a higher tax bill as a result of the changes. Large commercial property investors will be the hardest hit, with anyone buying a property for more than £1.05m paying more Stamp Duty as a result of the changes.

    "...The top rate rising to 5% could cause headaches for the higher end of the market"

    Will it raise extra revenue?

    Despite saying more than 90% of buyers of commercial property will be better off, the change is expected to generate significant extra revenue.

    The Treasury expects the move to bring in an additional £385m in the 2016/2017 tax year, rising to £515m the year after and reaching an extra £590m by 2020/2021.

    How has the industry reacted?

    While small business groups welcomed the change, the British Property Federation, which represents property companies, described it as an “out-of-the-blue raid on commercial property transactions”.

    Paul Emery, partner at PwC, described the reform as the “most significant change to Stamp Duty on commercial property for a decade”.

    But he added: “While changing from a slab to progressive structure will be welcomed, reducing distortion around the bands, the top rate rising to 5% could cause headaches for the higher end of the market.

    “Properties over £1.05m will experience a substantial increase in the rate of Stamp Duty, which could subsequently slow transaction levels”

    Is this part of a government push to help small businesses?

    There were certainly other measures in the Budget that benefit small businesses. Small Business Rates Relief will be increased from £6,000 to £15,000 for the basic rate from April 2017, meaning 600,000 small businesses will not pay business rates at all.

    Going forward, the Government will use the CPI measure of inflation, rather than the RPI measure, for uprating business rates, leading to more accurate rates bills for retailers.

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