|Article - Property Law & Practice|
A new scheme for stamp duty has been brought in by the government by the Finance Act 2003 on 1 December 2003. Any contract entered into before this date will generally not be subject to the new tax even if the completion date is after 1 December 2003.
The tax will now be known as Stamp Duty Land Tax (SDLT) and a purchaser must now in every ‘notifiable transaction’ deliver a land transaction return to the Inland Revenue within 30 days of completion.
The following transactions are notifiable transactions:
Grant of a new lease
Under the new scheme there will be an increased tax charge on the grant of a lease at a rent. It used to be the case that it would be charged at 1% of the rent for leases of up to 7 years and 2% on leases of more than 7 years but not more than 35 years. However, SDLT will now be charged at 1% of the total value of the rental stream over the length of a lease. This is subject to an exemption for commercial leases for the first £150,000. Market value rent reviews will generally be ignored with SDLT being charged on the initial rent, unless the review is within 2 years and then it will increase accordingly. This is to stop attempting to put rent at an artificially low level to avoid tax and subsequently increasing it. A lease for an indefinite term will be treated as a 12 year term which potentially results in onerous levels of SDLT for periodic tenancies.
The implication of this is that for small commercial leases the tax may actually be less under the new scheme but for medium size and large commercial leases the cost of tax will be a massive increase. In reality, this cost will ultimately mean increased prices for the consumer particularly in the leisure industry as costs are passed down the chain.
The illustration below demonstrates how the new scheme will benefit smaller commercial leases but disadvantage long commercial leases for a high rent:
The new legislation will be tightening up the system of avoidance of stamp duty. For instance, a gift of properties subject to a mortgage will now give rise automatically to stamp duty land tax. It will also prevent attributing the bulk of the purchase price to consideration for a non-stampable event in an attempt to avoid stamp duty.
Many of the reliefs available under the existing scheme will, however, remain. These relate primarily to corporate reorganisation and reconstruction. Exemptions for transfers of land in disadvantaged areas will also still apply.
Article First Published: 7 December 2003
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