Tax - Eightfold stamp duty hike to hit retailers

An Inland Revenue consultation process on the impact of a stamp duty land tax has offered few concessions. The government now plans to go ahead with this new tax which will increase the taxation on larger property leases by more than 800%.

Stephen McGrady, KPMG's head of stamp duty taxes, says that the new law was outlined in the Finance Act. 'It is controversial because it increases the amount of taxation by eight or 10 times. It also treats the purpose of a lease as the same as a property purchase which is not always the case.'

He argues it may deter mass market retailers and similar ventures from taking out leases on larger properties. At the heart of the tax is a complex calculation based on the total rental value of the property over the length of the lease.

The government has proposed that the tax will include all properties above 150,000 but that the 1% tax would apply to the full value of the property leased. Under the Revenue consultation, the tax would now be applied only to the part of the rental value above 150,000.

The CBI says the government is understating how many leases will be affected and overestimating the present value of leases. Hardest hit are likely to be retailers and consumer services firms such as pubs and restaurants.

For example, a retailer leasing a shop for 25 years at an annual rent of 120,000 would currently pay 2,400 duty. Under the new rules, the firm would pay about 19,000 - eight times more.

Ruth Kelly, financial secretary to the Treasury, said: '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 distortions and prevents avoidance.'

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