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Editorial 9th May 2003-05-06
STAMP DUTY CHANGES
A report by John A. Gearing FRICS
Stamp Duty reform could damage British business at a crucial time says
Royal Institution of Chartered Surveyors. Changes are long overdue to
stamp duty legislation, but government plans introduced at the last budget
to extend duty on commercial leases have raised concerns. The budget introduces
a measure designed to exclude more small businesses from charge to stamp
duty from 1st December 2003. The stamp duty zero rate band threshold will
be significantly increased from £60,000 to £150,000 for non-residential
purchases, eliminating the charge on around 18 per cent of commercial
property acquisitions. The new zero rate threshold will apply to non-residential
lease where NPV of rents is not more than £150,000, taking around
60 per cent of new commercial leases out of charge altogether.
For larger businesses the picture is not so rosy - under the modernised
regime the Government also proposes to update the existing charge on the
grant of new leases (known as Lease Duty) to bring it closer into line
with the charge on transfers of freehold land and buildings. At present
the charge is calculated by reference to length of lease and the average
annual rent, with four different rates applying. This approach does not
properly reflect the value of the lease over time and creates distortions
particularly around the points where rates change. Under the proposals,
the new charge will follow modern commercial practice in valuing the rent
payable over the term of the lease at its discounted net present value(NPV)
and there will be a single rate of 1% of the NPV or rental payments, where
the NPV exceeds the zero rate band of £150,000. The Stamp Duty will
have to be paid in advance up front at the time of the signing of the
Lease. In the case of a business such as electrical retailer Dixons' this
could add £2m to property costs whilst for B & Q the estimate
is around £5m. Larger organisations are reported as saying that
it is inconceivable that retailers and their trade organisations can support
any proposals to change stamp duty as announced in the Budget. Some confusion
arises over the fact that small businesses will be immune from the tax
as some retailers have said that only those paying a low rent of £15,000
pa or less would be exempt. The grant of new leases following the expiry
of old leases will be put in doubt and possibly put a great number of
jobs at risk if huge rises in Stamp Duty have to be paid
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