Tenants may find themselves out of pocket when the stamp duty land tax (SDLT) regime comes into force on 1 December.
Under SDLT, introduced by the Finance Act 2003, the rents payable throughout the term of a lease will be aggregated and then discounted at a rate of 3.5% pa to determine the net present value (NPV) of the rents. The charge to SDLT will then be 1% of the NPV. Under the old stamp duty regime, the charge was based on the average yearly rent under the lease.
Thus, the modifications will tend to increase bills, particularly with regard to longer leases. For example, a tenant under a 15-year lease will generally pay between five and six times more SDLT than would have been due under the present stamp duty regime.
On 20 October, the government announced various changes to the arrangements, although it is questionable whether they will address the property industry’s concerns about the reforms. These modifications are explained in
New anti-avoidance provisions may also cause difficulty. In particular, assignments of leases may become chargeable to SDLT by reference to the NPV of the rents (rather than just on the consideration for assignment) where the original grant of the lease was the subject of a relief. It is not yet clear how this would operate in practice, but it may catch cases where the lease is granted to a member of the same group as the lessor (benefiting from group relief) but the later assignment is to a person outside the group.
Regulations governing the changes were published on 30 October. It will be important to review these carefully to clarify their effect upon transactions due to complete after 1 December.
Ben Taylor is an associate in the real estate department at Allen & Overy.
Related items:
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Tenants may find themselves out of pocket when the stamp duty land tax (SDLT) regime comes into force on 1 December.
Under SDLT, introduced by the Finance Act 2003, the rents payable throughout the term of a lease will be aggregated and then discounted at a rate of 3.5% pa to determine the net present value (NPV) of the rents. The charge to SDLT will then be 1% of the NPV. Under the old stamp duty regime, the charge was based on the average yearly rent under the lease.
Thus, the modifications will tend to increase bills, particularly with regard to longer leases. For example, a tenant under a 15-year lease will generally pay between five and six times more SDLT than would have been due under the present stamp duty regime.
On 20 October, the government announced various changes to the arrangements, although it is questionable whether they will address the property industry’s concerns about the reforms. These modifications are explained in Government response on tax Estates Gazette 1 November 2003, at p163.
New anti-avoidance provisions may also cause difficulty. In particular, assignments of leases may become chargeable to SDLT by reference to the NPV of the rents (rather than just on the consideration for assignment) where the original grant of the lease was the subject of a relief. It is not yet clear how this would operate in practice, but it may catch cases where the lease is granted to a member of the same group as the lessor (benefiting from group relief) but the later assignment is to a person outside the group.
Regulations governing the changes were published on 30 October. It will be important to review these carefully to clarify their effect upon transactions due to complete after 1 December.
Ben Taylor is an associate in the real estate department at Allen & Overy.
Related items:
Government response on tax Estates Gazette 1 November 2003, p163 (Jonathan Evans, of Linklaters, and Melville Rodrigues, of Mayer, Brown, Rowe & Maw).
A new stamp edition Estates Gazette 26 July 2003, p142 (Jonathan Evans and Melville Rodrigues).
New proposals for modernisation of stamp duty on land transactions EGi Legal News 21 October 2003.
