The chancellor announced a surprising and welcomed reduction in the rates of capital gains tax (CGT) in his 2016 Budget.
From 6 April 2016 CGT rates have been reduced to 10 per cent for basic rate tax payers and 20 per cent for those subject to tax at higher rates. Where the investment disposed qualifies for entrepreneurs relief a higher rate tax payer will still pay CGT at a rate of 10 per cent.
Although commercial investors will benefit from these lower rates, sellers of residential properties and individuals receiving a carried interest have unfortunately been specifically excluded from the reduction. They continue to be taxed at rates of 18 per cent and 28 per cent.
Stamp duty land tax (SDLT) changes
In another measure, purchasers of commercial property will now be subject to SDLT rates of up to 5 per cent on acquisitions for more than £250,000. Although the calculation of the SDLT liability will be based on applying the relevant rate to each incremental bands, rather than applying the highest SDLT rate to the total consideration, the measure will only benefit purchasers of non-residential property with a cost of less than £1.05m. Buyers adversely affected will now need to consider how to finance the SDLT increase.
As previously announced, investors in residential property have been targeted with SDLT rates of up to 15 per cent from April 2016 and face restrictions on the deductibility of finance costs from April 2017.
Given the lower rates CGT and SDLT on commercial buildings than those for residential properties, it is anticipated that many individual investors will prefer to hold non residential real estate.