Tim Bell, head of property at F&C Management said: “This is a considerable relief to the property market which was expecting the rate to be raised by up to 2%. This would have had a particularly damaging effect on the market as investment values would fall, damaging investor sentiment. Our forecast return for property for 2003 remain in the order 6 – 7% and 8 – 9% per annum over the next five years.
On the subject of stamp duty on leases, Bell was less sanguine. With effect from 1 December it is proposed to update ‘lease duty’. This charge takes place upon the grant of a new lease and will be calculated at a rate of 1% of the discounted net present value (NPV) of the rental payments payable over the length of the lease. An exemption for commercial leases will apply where the NPV is under £150,000.
“This duty,” said Bell, “replaces the previous arrangements which were calculated on the average rent payable and lease length. Not surprisingly the change will substantially increase the tax take by the government and be an additional cost on tenants when they lease space. The effect will be to dampen already depressed tenant demand by increasing occupational costs. The objective of this new regime is to bring the treatment of holding leasehold or freehold property into line and to reduce stamp duty avoidance.”
CBI director-general Digby Jones also voiced his concerns about the threatened increase in stamp duty on leasehold commercial property, which “could be devastating for some high-street businesses."
He said: "Although there will be an extensive consultation period, it is clear that these proposals will seriously increase the cost of leased business properties for many companies.
"On a typical high-street business lease the stamp duty cost would more than double under the Chancellor's new proposals. Property leasing is not necessarily a tax avoidance measure, something the Treasury fails to recognise. For many sectors, in particular retailing and catering, it is integral to the way they do business."
