Howes Percival LLP is urging businesses to complete property deals before the end of the year to avoid a double-whammy.

From 1st January 2010 VAT will revert to the standard rate of 17.5 per cent from the current 15 per cent VAT rate, increasing the tax payable on property transactions. But in addition, Stamp Duty Land Tax (SDLT) is also payable on the price or (in the case of a leasehold transaction) the rent. As VAT is included in the calculation of SDLT, any transactions post January 2010 will be hit twice.

Tessa Haskey, Commercial Property Partner at Howes Percival LLP explained, “VAT is treated as part of the consideration for the purposes of calculating Stamp Duty Land Tax. As a result, the increase in the rate of VAT has the knock on effect of increasing the amount of SDLT payable. Property deals involve large sums – so a reversion to 17.5 per cent (or a higher rate) will have an adverse affect on some commercial property transactions, making them more expensive. While most businesses will be able to claim the VAT back, cashflow is key in the current economic climate. So completing transactions during the reduced VAT rate period ends will help reduce the cost of the property and the tax payable.”

If you have any queries relating to commercial property and the VAT rate change, contact the Commercial Property team at Howes Percival LLP.