"Tenants are also liable to pay stamp duty, albeit the threat is largely restricted to those renting at the very highest rungs of the rental market"
- Marc von Grundherr - Benham and Reeves
Since December 2003, long-term residential tenancies have had the potential to be liable for Stamp Duty Land Tax. if a lease of under seven years exceeds the nil rate threshold with respect to chargeable considerations.
More specifically, the HMRC Leasehold sales on Stamp Duty Land Tax guidance notes both a five and seven-year time frame for SDLT, however, if a lease is treated as a successive linked lease (where a tenancy agreement is renewed between the same parties and with the same terms) there is no time limit, thus meaning SDLT would be due whenever the threshold is exceeded.
This threshold was previously set at £125,000, but increased to £250,000 by Lizz Truss, meaning that SDLT is only payable once the cumulative rent paid over the life of the lease (known as the net present value) exceeds this threshold.
As it stands, if the net present value (NPV) is greater than £250,000, Stamp Duty Land Tax is calculated as 1% of the difference between the NPV and £250,000. From March of next year, this may change to £125,000.
Of course, for the average London tenant, the threat of a stamp duty tax bill is unlikely to ever materialise. In fact, the research by Benham and Reeves shows that based on the current average monthly rent, it would require the average tenant to rent a property for a decade (with a successive linked lease) before they became liable to pay stamp duty tax. Even when they did, this charge would amount to just £428.
However, for those at the very top end of the capital’s rental market, the additional cost of stamp duty is one that they already have to factor in when looking to secure a tenancy.
The latest research by London lettings and estate agent, Benham and Reeves, looked at the example of a prime property, listed with a weekly asking rent of £40,000. Such a property would attract an estimated total net present value of over £2m per year, far exceeding both the current threshold of £250,000 and the potential rate of £125,000 from March next year.
This means that around £1.76m is liable for stamp duty tax in the current market, requiring a stamp duty payment of £17,597 after passing the threshold after a single year’s tenancy. From March next year, this stamp duty cost could be set to climb to £18,847.
For those who can’t quite stretch to the heights of a £40,000 per week rental property, additional figures from Benham and Reeves show that even those renting at the lower super-prime rental market of £25,000 (per week) would be in line to pay £10,060 in stamp duty in the current market, climbing to £11,310 should the threshold be reduced from March of next year.
Director of Benham and Reeves, Marc von Grundherr, commented: “Stamp Duty Land Tax is an archaic thorn in the side of homebuyers across the nation and only increases the financial obstacles faced when it comes to climbing the property ladder.
"However, what you may not know is that tenants are also liable to pay stamp duty, albeit the threat is largely restricted to those renting at the very highest rungs of the rental market.
"Of course, if you have £40,000 a week to spend on a rental property, you may not blink at paying an additional £18,000 a year in stamp duty, but that’s really beside the point.
"It’s about time we do away with this outdated government tax grab that does nothing but penalise buyers and renters across the sales and rental markets."
