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Stamp duty ticking time bomb Tenants happily installed in rented accommodation with plans to renew their lease for another few years should watch out - the longer they stay, the more likely they are to be hit with an unexpected tax bill.
A new law that comes into effect from the 1st December 2003 sets a threshold of rent above which new tenants will become liable for stamp duty land tax. Not only is the liability cumulative year upon year - the longer you stay, the more likely tax will be due - but whether or not you pay tax, after seven years you will legally be required to fill out a land transaction return. Failure to lodge the return brings an automatic fine. In the case of residential property, once the accumulated rent that has been paid (following a calculation for discount) breaches the threshold of £60,000, you will be liable year upon year for tax on subsequent rent that you pay, to the tune of 1% on the excess above the threshold (see footnote). The next catch relates to your relatives. If the lease is passed on to a relative or a business linked to you, the link remains - that is, the law will consider the lease to be a continuation and will add your rent payments to those made under the terms of the new lease. Thus, the new leaseholder 'inherits? your rent history. CLA President Mark Hudson says: 'Are tenants aware that the next time they sign a lease, they will be liable under the new stamp duty land tax regulations? This tax not only places a burden upon tenants to keep track of and report their rent, but also reduces incentives to grant longer leases, thus reducing tenants' security.' Under the new regulations, once the threshold is breached tenants have 30 days to file a land transaction return. Failure to do so brings a penalty of £100, which rises to £200 after 3 months along with interest and a tax-related penalty. A daily penalty of £60 can also be imposed. Tenants should equally be aware that they need to keep records of their payments for six years. The Country Land and Business Association (CLA) is alerting its members through a new guidance note, which explains how the new law applies to leaseholders. A table is included to help tenants work out when they will breach the threshold, based on the amount of rent they pay annually. |
Contact Adrian Baird
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More articles and documents [News Archive] [23 April 2009] GN42-03: Stamp duty land tax (SDLT) [Guidance notes] [5 November 2003] CLA58 - Succession planning for farmers and landowners [Advisory handbooks] [9 November 2010] EU Consultation on Reduced Rates of VAT [Consultation response archive] [13 May 2008] |
Formerly an Inland Revenue Tax Inspector in Leicestershire. He was promoted to the Inland Revenue Policy Division at Somerset House, London, and was an Inspector Principal when he joined the CLA.
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