Budget 2016: Property SIPPs get Budget boost
Two announcements made by the Chancellor during last week’s Budget will give a boost to property purchases for SIPPs, as Bill Graham, our property expert, reports.
Among the surprises Chancellor George Osborne unveiled during last Wednesday’s Budget was his announcement for immediate reform ofstamp duty land tax (SDLT) on commercial property transactions in England, Wales and Northern Ireland.
With the new rates being put in place the day after the Budget, the Chancellor has transformed the system from a ‘slab’ to a ‘slice’ structure. These rates, however, will not apply in Scotland where land building transaction tax (LBTT) has been in effect since April 2015.
Instead of tax being due at one rate based on the entire property value, each new SDLT rate will only be payable on the portion of the property value which falls within each band bringing savings to property purchasers.
SDLT’s tipping point
The tipping point under this new band rating is a value of £1.05m. Every purchaser of commercial property up to £1.05m will make a saving on the new SDLT
For example, as a result of the new ‘slice’ system, a transaction at say, £300,000 will be liable for £4,500 under the new SDLT band compared with £9,000 under the old rate. Although SDLT is only one of many factors influencing a SIPP acquisition, this move by George Osborne is good news for purchasers of commercial property looking to make savings.
It is also worth considering whether the new SDLT rates will impact high-value transactions and whether this additional one per cent SDLT ultimately creates pressure on headline sale prices.
Helping hand for small businesses
The Chancellor also unveiled a surprise boost for small business owners in his Budget that could help up to 250,000 SMEs in England and Wales.
From April 2017, small businesses that occupy commercial property with a rateable value (RV) of £12,000 or less will pay no rates, up from the current RV threshold of £6,000. Properties with an RV between £12,001 and £15,000 may also receive a tapered rate relief.
This welcome move from the Government will help ensure occupancy costs remain competitive for SMEs. The move should also help improve the profitability of firms and indirectly help meet other key costs such as rent. This could potentially be good news for property SIPPs as it may place downward pressure on rent arrears while improving the future letting opportunities of vacant space.
The extension of the new business rates relief scheme in England and Wales is scheduled for April 2017 and it’s anticipated that over half of all business rate payers will see a fall in their business rates – or not pay any at all.
On the flip side, savvy landlords with property in demand may look to try and increase rents.
Coincidence or not?
While the reduction in SDLT and reduced costs for tenants is undoubtedly good news, there may be a sting in the tail. It may or may not be a coincidence that the Revaluation of Business Rates across the UK is also scheduled for 2017. Would the Chancellor give with one hand while taking with the other?
Get in touch
Looking ahead, advisers may see an increase in enquiries around investments with clients looking to invest into a tax-efficient wrapper like a SIPP. We can help, contact our Business Development Managers, call us directly on 0116 243 7152 or email: firstname.lastname@example.org
The information given above is based on our understanding of the proposed changes. The information is based on current law and HM Revenue & Customs (HMRC) practice, which is subject to change.