Commercial Considerations

Claire Baker-Kemp

After weeks of speculation Chancellor Rachel Reeves presented the first Labour Budget in 14 years to the House of Commons. Senior Associate Claire Baker-Kemp takes a look at the changes to taxes applicable to the commercial property market and buy to let investors.

Stamp Duty Land Tax (SDLT)

From 31 October this year, the additional dwellings SDLT surcharge, which is the higher rate of SDLT charged on purchases of additional residential properties by individuals and companies, was increased from three per cent to five per cent. The single rate of SDLT payable by companies purchasing residential property for more than £500,000 was increased from 15 per cent to 17 per cent.  These changes will impact companies and individual investors purchasing additional residential properties for the buy-to-let market, making such investments more expensive with the likelihood that those additional costs will increase rent for tenants.

It is, however, expected that the additional costs of investing in residential properties will discourage the purchase of buy-to-let properties and increase the availability of residential properties for first-time and primary home buyers. In contrast the acquisition costs of commercial properties are relatively unaffected by the budget with substantially lower SDLT rates being charged.  For example, the purchase of an additional residential property for £500,000 will incur SDLT of £37,500, whereas the purchase of a commercial property for the same price would incur an SDLT charge of £14,500.

Capital Gains Tax (CGT)

CGT rates for commercial property disposals were increased. Gains within the basic rate band increased from 10 per cent to 18 per cent and within the higher rate band from 20 per cent to 24 per cent, aligning CGT rates for commercial property disposals with those for residential property.  These new rates apply to disposals made after 30 October this year.

The rate of CGT for Business Asset Disposal Relief (BADR), formerly known as Entrepreneurs’ Relief, will remain at its current rate of 10 per cent until 5 April 2025 and will increase to 14 per cent for disposals made on or after that date and then to 18 per cent for disposals made on or after 6 April 2026.

Business Rates

For owners of retail, hospitality, and leisure businesses (RHL), business rate reforms were announced focusing on providing support to these sectors.  The measures include the introduction of permanently lower multipliers for RHL properties with a rateable value under £500,000 from April 2026-2027. It is intended to fund this by introducing a higher multiplier on properties with a rateable value of £500,000 or above.

In the interim period prior to the new permanent multiplier being introduced, support for RHL properties will be provided by way of a 40 per cent relief given to RHL businesses on their business rates in 2025-26, up to a cap of £110,000 per business.

The Government’s intention to reduce business rates for relevant RHL businesses from 2026-27 onwards is likely to be significant for the RHL businesses that will benefit and those other property-owning businesses that will bear the cost.