Commercial property values are likely to fall as a direct result of changes to commercial stamp duty introduced in last week’s Budget, RSM has warned.
Howard Freedman, RSM’s head of real estate, called the reform “yet another attack” on the real estate sector.
He said: “Changes to commercial stamp duty are clearly yet another attack on the real estate sector, and the general consensus is that this will result in prices taking a downward dip – as is evident in listed real estate companies being downgraded.
“Those buying at the top end of the property scale will suffer the most, for instance on a £50m non-residential property, the SDLT would have been £2m compared to £2.49m post-Budget – a substantial increase of almost £500,000.”
On Wednesday last week George Osborne revealed an immediate change from a slab structure for commercial stamp duty to a tiered structure to bring the tax into line with its residential counterpart.
There will be a zero rate band for purchases up to £150,000, 2% on the next £100,000 and a 5% rate above £250,000.
The Chancellor anticipates that this move will raise around £2.5bn in five years.
The government is also pressing ahead with the introduction of legislation to ensure that offshore structures cannot be used to avoid UK tax on profits generated from dealing or developing UK property, and will be creating a taskforce to look into this.
The measure is aimed at Isle of Man and Channel Island companies which currently benefit from Tax Treaty relief.
Freedman added: “The government continues to implement its proposal to restrict relief for finance costs, such as mortgage interest, to 30% of earnings before interest or based on interest to earnings ratio of the worldwide group.
“The measures are with reference to internal and external borrowing, and further disclosure of non-resident structures will be required if claims are above the 30%, although there is a £2m interest expense de minimis, which will be helpful to some.
“However this will have a significant financial impact on the property sector and will almost certainly put greater pressure on cash flow.”
Freedman also bemoaned the cut in capital gains tax, which has been reduced from 28% to 20%.
He said: “Second home owners and landlords are the real losers here, as the Chancellor has [effectively] announced that an 8% surcharge would be levied on capital gains on residential property.
“This will come as a blow so quickly after the stamp duty rise on second homes in last year’s Autumn Statement, and sends a clear message that the government’s focus has now shifted to raise taxes from commercial property.”