New Stamp Duty Criteria

Rates The current rates of stamp duty have been frozen for both commercial and residential properties. The rate for shares, securities and other residential property such as receivables also remains unchanged. The threshold at which the charge will take effect for commercial premises will however be increased to 150,000. This extension will be activated on 1 December 2003.

Our view The increase in the threshold for commercial properties is very welcome, particularly in view of the new charge on leases expected to take effect at the same time (see modernisation, below). We understand that it is estimated that the increase in this threshold will eliminate stamp duty on 18% of commercial property acquisitions.

Disadvantaged areas From 10 April, no stamp duty will be payable on the acquisition or the grant of a lease over commercial properties in the 2000 listed disadvantaged areas. This measure extends the existing exemption for non-residential properties in disadvantaged areas with a value of

150,000 or less. Residential properties sold for more than 150,000 will be chargeable. The relief applies both to the premium and any rental element of a lease over non-residential property, whereas residential property is only eligible for relief if the annual average rent is no more than 15,000 and any premium does not exceed the 150,000 cap. The onus will be on the taxpayer to certify their transaction as qualifying for this relief, which applies to documents signed on or after 10 April irrespective of whether the contract was entered into before or after that date.

Our view This exemption will have the effect of significantly reducing stamp duty collected on commercial property. The counter-balance to the loss would appear to be contained within the immediate provisions dealing with anti-avoidance and the proposed regime for taxing the grant of leases under the new stamp duty land tax with effect from 1 December 2003 (see modernisation below).

Immediate anti-avoidance From 15 April 2003, changes are being made to tighten anti-avoidance legislation aimed at structures mitigating the exposure to stamp duty on commercial property transactions upon which stamp duty group relief or acquisition relief is being claimed. Certain other mitigation structures are also being attacked.

Our view There are some fairly obvious loopholes in the clawback provisions introduced in 2002 and we anticipate that some of these may be closed before the introduction of the new stamp duty land tax on 1 December

2003.

Modernisation The much advertised modernised regime - stamp duty land tax - will come into effect for transactions completed on or after 1 December 2003 where the transactions relate to contracts entered into after Royal Assent. Documentation completing contracts entered before Royal Assent will remain chargeable under the existing regime no matter when they are completed.

Leases are being specifically targeted in the modernisation process with the aim of bringing the charge to duty on the grant of a lease more into line with the charge arising on transfer. Legislation imposing a charge to duty at 1% on the net present value of total rental payments due over the term of the lease will be introduced with effect from 1 December

2003. Future rents will be discounted at 3.5% per annum for this purpose. Any premium payable under the lease remains subject to the existing treatment. Also from that date, VAT will be excluded from treatment as consideration (ie no stamp duty on VAT) provided the landlord has not opted to charge VAT by the time the lease is granted.

Our view As an example of how this provision might operate, a lease for 25 years at an annual rent of 500,000 would currently be liable to stamp duty of

10,000 (2% of 500,000). Under the new rules, total rent would have a net present value of 8,240,575 and stamp duty of 82,408 would be payable. This represents a significant increase in duty. The Government has however said that it will consult further on this proposal. Any such new provisions will impact significantly on the cost of business. Although a new zero rate threshold for leases where the rent does not exceed 150,000 is to be introduced to deflect criticism about the adverse impact of this measure on small businesses, it will nevertheless be resisted by the property sector.

Other property Stamp duty is to be abolished with effect from 1 December 2003 on all property other than land, shares and interest in partnerships. While the stamp duty treatment of transactions involving partnerships has not changed, it will however be the subject of future consultation and review.

Our view The proposed removal of stamp duty from all assets other than land, shares and interests in partnerships will remove transaction costs for business acquisitions and is welcome. In particular, the removal of stamp duty from the sale of receivables will facilitate stamp tax free securitisations and debt factoring. Registered social landlords

A retrospective exemption from stamp duty has been introduced in respect of some tenancy agreements entered into under contracts with local authorities to house the homeless. The exemption applies to agreements entered into since 1 January 2000.

In message , Len writes

There are no real significant changes as far as the normal residential punter is concerned. The idea is that the revenue will be looking much closer at deals near to the thresholds, and may investigate closely those deals where contents are paid for to get the price below the threshold.

If you are truly interested in the detail, there is a detailed response prior to mine.

Do you know if this applies the same to commercial where the fixtures, etc can genuinely be significant.

Len