Radical changes in the way that the transfer or renewal of leases is taxed are due to be introduced on the 1st December and they are expected to increase the Chancellor’s tax take by £30m this year and a staggering £200m next year
Currently tax on new or transferred leases is 1% of the average annual rent for a single year. The new system will charge a percentage of the total rent paid throughout the lifetime of the lease with a threshold limit of £150,000 beneath which nothing will be payable.
The threshold is designed to protect small businesses paying low rents but it is not as low as it seems. A small shop for instance paying £15,000 p.a. on a fifteen year lease (the majority of the shops in Brighton would comply) would be well above the threshold and would find themselves paying over £1,700 in duty. Currently they would pay £235.
The government claim that the threshold limit of £150,000 will exempt about 60% of all businesses but other observers have suggested that the threshold would need to be raised to over £300,000 to reach the 60% exemption figure.
This may well have the effect of increasing pressure on landlords to accept shorter lease terms accelerating a trend that has been in evidence for over a decade. But this does not always suit either landlords or tenants, particularly if the later has to write off bank loans over a period of time.
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