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New Stamp Duty Regime To Hit UK Businesses Hard

by Jason Gorringe,, London

18 November 2003

The UK's Inland Revenue announced details last week of Stamp Duty Land Tax (SDLT) which replaces existing Stamp Duty for UK land and buildings transactions on 1st December as a result of the 2003 Finance Act. There has been widespread avoidance of stamp duty on major land and property transactions, often through the use of leases, and the new system is meant to put a stop to it, bringing in an extra £30m this year, rising to £200m in 2004-05.

The Inland Revenue claims that 60% of commercial transactions will be exempt from the new rules under a de minimis GBP150,000 threshhold, but this claim has been rubbished by the British Retail Consortium, which says it carried out a survey which showed that only 29 per cent of retail leases would be exempt. In London, it estimates that hardly any businesses will escape. "From our data we were able to calculate that to reach the government's 60 per cent exemption, the threshold would have to be raised to £310,000," said a spokeswoman.

SDLT introduces a ‘process now, check later’ system, says the Revenue, as well as introducing the new concept of a ‘liable person’. A key aspect of the new system will be the clear requirement to notify relevant transactions by completing a Land Transaction Return (LTR) within 30 days of the effective date of the transaction. In response, the Stamp Office will issue an SDLT certificate that can be presented to a Land Registry (replacing the current need to get documents stamped).

The Revenue says it expects that firms will take time to apply the new system correctly, and will be flexible over its introduction. "For a short period we will:

  • Look wherever possible to process and issue SDLT certificates even if the Land Transaction Returns (LTRs) have been completed unsatisfactorily and
    contain some omissions or errors.
  • Forego late filing penalties for LTRs that have been submitted more than 30 days but not more than 40 days after the effective date of the transaction. Wherever possible, in these instances the LTR will be processed as normal and a SDLT certificate issued.

Nevertheless, forms that contain critical errors or omissions will not receive a certificate. Instead, they will be sent back, with a letter identifying the boxes on the
LTR that need to be corrected and re-submitted. LTRs will be sent back where the basic information is missing, such as:

  • The correct payment of tax is not enclosed (or paid via the other payment options, as described on the payslip)
  • Where it has not been signed by the purchaser or person holding a purchaser’s power of attorney
  • Key pieces of data including the name of the purchaser(s) or the address of the property being bought which mean a certificate simply cannot be issued.

Acceptance of the LTR does not mean that the Revenue has 'accepted' that the tax payable on the LTR is the correct amount, and the Revenue retains its right to enquire into the transaction within the time limit allowed by the legislation.

The new regime will put an end to many avoidance manoeuvres. At present, stamp duty is not paid on a property transaction until the final stage of completion when the legal title is transferred - opening the possibility of leaving the title to "rest" - in effect deferring stamp duty payment indefinitely. Under the new rules, the duty must be paid when the payment is made.

Duty on commercial leases will in future be calculated at 1% of the net present value of rent payable on a lease, rather than than as a percentage of average annual rent. The effect is a big increase in up-front costs for many businesses. The BRC thinks that the average lease duty would rise by 350 per cent - but for some retailers it was likely to be up to eight times higher.

The government claims that the change was not meant to increase taxes, but few businesses believe it - and they note that it would now be easy for the government to increase the rates of stamp duty, which are lower in the UK than in a number of other EU member states.

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