This tax was introduced by the Finance Act 2003. Its main
provisions came into effect in December of that year. It heralded a major
procedural change from a tax on documents to a tax on transactions. It
continued to tax commercial property transactions on a sliding scale for
purchases up to 4% on deals of over £500,000. There are provisions for lower
tax rates on transactions, in bands under £500,000 and for residential
properties in disadvantaged areas. Transactions under £120.000 will pay no tax.
On leases, mainly of over seven years, a tax will be levied
of 1% on the Net Present Value of the rent payable over the term of the lease
with a discount rate of 3.5%. Leases will clearly produce higher rates of tax
than previously and in a strange quirk of events this is likely to work with
other changes in the commercial market to encourage shorter lease terms.
Premiums payable on the grant of a new lease will be treated as taxable too. If
a lease has a rent review within five years of commencement, once decided. the reviewed rent must be notified to the Revenue and
further tax paid on the increase, Rent reviews after five years are
disregarded. Again there are variations for residential properties and
properties in disadvantaged areas. It is also assumed that options to break
will not be exercised.
One of the changes introduced will be for the party liable
for the tax to be required to notify the Revenue of the liability to pay the tax
and to pay it. The Revenue will then issue a certificate. The purchaser or
tenant will not be able to register their interest with the Land Registry
without it. This, bearing in mind some of the changes introduced by the Land
Registration Act 2002 (see page on this on this website) could be a very
serious matter. Even the draconian penalties for failing to notify the Revenue
of a chargeable transaction could be a lesser penalty than losing the property.
One of the less attractive points in the system is that SDLT is payable on the consideration or rent including VAT
where payable. A tax on tax.