Yet more property taxes! – New Lease Duty

The government, in its desperation to raise further funds to cover its mismanagement of our finances seems to think the further taxation of commercial property and business leases will help ease their problems.

Occupiers currently pay 2% of annual rent as a one off cost of taking a new lease. Nobody likes it but it is not unduly onerous.

The way the new lease duty works is to tax new occupiers of buildings at a rate of one percent of the total value of their leases. The total value of the lease is calculated by adding together each year’s rent for the life of the lease and subtracting an annual 3.5% discount.

For one real life occupier, taking a 1,250sqm office in London on an annual rent of £149,635 with a ten year lease, its current duty of around £3,000 would go up by more than 4 times. Its lease duty under the new proposal would be £12,078.

The Treasury itself estimates that it will increase its annual take from lease duty from £50m to £250m per year, indicating that the average increase will be 5 times.

Further joint letters to the Inland Revenue from the same six business organisations have called on the Treasury to either reduce the rate of the duty, change the discount rate to a realistic level that reflects the threshold above which the tax is payable.