§ The Financial Secretary to the Treasury (Ruth Kelly)
I am pleased to announce the next steps in the process of modernising stamp duty on land transactions. These includeA significant change to the proposed charge on the rental element when a new lease is granted ("lease duty"), reducing tax bills by £1500 per lease on commercial transactions (£600 per lease on residential transactions), which will be of significant benefit to smaller businessesA new relief for businesses raising finance through the sale and leaseback of their land and buildings and relief for "chain-breaking" and similar companies which help to ensure an active housing marketFurther consultation on how the new regime might apply to partnerships.
The announcement follows extensive consultation on the process throughout the earlier part of this year.
These proposals along with those announced in Budget 2003, will help to achieve the Government's aim of a modern, efficient, system of taxing land transactions which promotes fairness between taxpayers, reduces 28WS distortions and prevents avoidance. I am also pleased that our proposals, which follow extensive and valuable consultation with interested parties, will be of particular help to small and medium-sized enterprises and business start-ups.
The Inland Revenue is today publishing a news release, supplemented by a technical note, giving details of the proposed changes. I will be laying regulations to give effect to the changes before the House shortly. The Inland Revenue is also publishing for consultation draft clauses on the Stamp Duty Land tax treatment of partnership transactions.
The Government's proposals on lease duty follow extensive consultation over the last 18 months. I am extremely grateful to all who participated in the consultation process. A good deal of valuable information and data was provided by participants and some important work was done in partnership. Throughout the consultation process the Government has been particularly keen to have regard to the effect of any new structure on small and medium-sized enterprises and business start-ups.
Having considered all the contributions made I now propose to modify the structure contained in the Finance Act 2003, by way of regulations under section 112 of that Act, as follows:The Finance Act charges Stamp Duty Land Tax on the "Net Present Value" ("NPV") of rent payable under a lease. NPV sums the discounted values of the rents. This discount recognises that future rent payments will be of less value. The Government believe that NPV represents a fair way of assessing the amount on which Stamp Duty Land Tax should be charged and proposes to retain it.The Finance Act sets a threshold of £150,000 for commercial leases, and £60,000 for residential leases. If the NPV does not exceed the threshold no Stamp Duty Land Tax is charged on the rental element. These thresholds mean that 60 per cent. of commercial leases and 90 per cent. of residential leases will pay no Stamp Duty Land Tax on the rental element. The Government believe these thresholds are fair and intend to retain themThe Finance Act provides that once the threshold is exceeded Stamp Duty Land Tax is charged at 1 per cent. of the full amount of the NPV. The Government propose to modify this so that Stamp Duty Land Tax is charged at 1 per cent. of the excess over the threshold. This means that on any commercial lease chargeable to Stamp Duty Land Tax the tax payable will be £1,500 less than under the Finance Act provisions.
EXAMPLEA lease for 18 years at an annual rent of £15,000 will have an NPV of £197,845. Under the Finance Act provisions Stamp Duty Land Tax of £1,978 would be payable. Under the Government's proposals only £478 will be payable.
I also propose to clarify the Stamp Duty Land Tax treatment of leases with uncertain rents, so as to avoid an undue compliance burden on tenants, and to provide that rent increases more than five years after the start of a lease are ignored.
I also propose (by way of regulations made under section 109 of the Finance Act 2003) to widen the reliefs in sections 58 and 59 of that Act to include companies who help to ensure an active housing market, by "chain-breaking" (buying property when a prospective sale falls through) and by buying houses from the personal representatives of people who have died. I also propose 29WS to give relief for sale and lease-back transactions (where a company raises finance by selling a property for a capital sum and leasing it back at an annual rent).
In his Budget statement my right hon. Friend the Chancellor of the Exchequer announced that certain transactions involving partnerships would remain within the existing stamp duty regime until at least 2004 to give time for further consultation. These are: transactions between a partnership and an incoming partner, changes in partnership interests and transactions between a partnership and a departing partner.30WS
The Inland Revenue is today publishing draft clauses which bring these transactions, so far as they involve dealings in land, within the scope of Stamp Duty Land Tax. As with the Government's other proposals the aim is to give fairness between taxpayers, reduce distortions and prevent avoidance.
My officials will be meeting interested parties to discuss these proposals but would welcome comments from others. The Government's intention is that the clauses will be included in the Finance Bill 2004 and will take effect from the date of royal assent to that Bill 2004.