HC Deb 14 May 1999 vol 331 cc223-4W
Ms Lawrence

To ask the Chancellor of the Exchequer what changes are to take place in the treatment for stamp duty purposes of leases under which the rent is to be adjusted in the light of changes in the retail prices index; and if he will make a statement. [84623]

Ms Hewitt

In the light of recent legal advice given to the Inland Revenue, the treatment of these leases for Stamp Duty is to be changed.

When a new lease is taken out, Stamp Duty is charged by reference to both the premium and the rent under the lease. The premium attracts duty at the same rates as the selling price on the sale of a freehold interest. The premium gets the benefit of the £60,000 nil rate band provided that the rent does not exceed a ceiling, currently £600 per annum. The average annual rent is charged at rates of between one per cent. and 24 per cent., depending on the length of the lease.

Many leases provide that the rent is to increase by a fixed percentage at annual or other intervals—or they lay down the actual amounts of the increases. The average annual rent, and therefore the Stamp Duty, is straightforward to calculate in these cases. But if future rent levels are expressed in terms of future movements in an index, like the RPI, it is less clear how a figure for the average annual rent can be calculated at the time the lease is taken out. In the light of representations, the then Economic Secretary made a statement to this House by way of Written Answer on 6 November 1996, Official Report, columns 541–43, setting out how the Stamp Office would apply Stamp Duty in such cases for the future, on the basis of legal advice. Broadly, where the rent under a lease was to be adjusted by reference to future changes in an index, Stamp Duty would be calculated by reference to changes in that index during the year ending with the date of execution of the lease.

However, the legal validity of this approach has been challenged. Further legal advice given to the Inland Revenue is that the current system of applying a formula to allow for increases in an index number after the date of execution of a lease is not appropriate. So this practice will cease.

In future, where there is a formula expressed in the lease for rent reviews based on the RPI, only any change in the RPI up to the date of its execution will be taken into account for Stamp Duty purposes. This is expected to result, in most cases, in the average rent being little more than the initial rent.

This change means that people who have paid Stamp Duty on this type of lease may have paid more duty than they should have done. The Inland Revenue will invite those who paid duty on a lease of this kind to contact the Stamp Office and claim any repayment due to them. Details of the arrangements for repayments are set out in an Inland Revenue Press Release and on the Inland Revenue website.