Chancellor plans to increase stamp duty on leased properties
The restaurant industry could end up paying hundreds of millions of pounds extra in stamp duty on leasehold properties if Government proposals for stamp duty reform go ahead.
The proposals, which have been described by property specialist David Coffer as "yet another terrible burden on our sector", will bring enormous increases in duty if they go through. They were first mooted a year ago by the Inland Revenue, but could be included in this year's Budget in April as part of a wide-ranging shake-up that would triple the duty on leases while raising an extra £600m a year for the Exchequer.
The chancellor is said to be considering an increase in the tax to help fill a potential gap in his spending, caused by a 20% drop in corporation tax receipts, the economic slump and the situation in Iraq.
David Wrightson, director with property company Christie & Co, said the measures were monstrous. "There's nothing wrong with the stamp duty structure. It's an unjustified attempt to penalise all people taking leases, for no reason. The claim that people are avoiding stamp duty is not justified."
Wagamama's Ian Neill agreed. "In the 30 years I've been in the business it has always been the practice to buy leaseholds and pay the premium, because we are restaurateurs and want to put the money into that, not into property.
"It's not a loophole. We haven't as restaurants pursued freeholds to avoid paying stamp duty but because that's what suits us as restaurants."
The measures are being brought in by Chancellor Gordon Brown to tackle the avoidance of stamp duty on property lease deals, which the Government sees as a loophole currently enjoyed by many businesses.
If the reform goes through, duty on leases will be calculated on a formula based on the premium and total rent payable over the term of the lease, instead of 2% on the first year's rent and 4% on the premium, as at present. Leases with a term of less than three years may be excluded.
The changes will effectively serve to achieve the same duty on freehold and leasehold properties. Restaurant groups, which tend to lease their premises rather than buying the freehold, will be one of the hardest-hit sectors.
Peter Hope, owner of the 38-seat Spice Café in Manchester, said the reforms would make him think twice about opening other sites. "Surely the point of having a lease rather than a freehold is so you don't have to pay as much stamp duty? A lease supplies you with some security and allows you to get your business going.
"The margins between profit and loss are so tight with a restaurant that your business could waver either way - so this would make me think twice about expanding."
While many larger restaurant groups said the charge wouldn't affect expansion plans, Antonia Brandes, a partner at solicitors Fladgate Fielder, said the reforms would affect small businesses and new start-ups. She said the Government was unfair to equate leasehold with freehold, and labelled the move just a way of raising duty.
"I act for entrepreneurs, and I have to write to ask them for £15,000 in stamp duty. It's going to be much more that that in the future. The question is where will they get it from?"
The decision is expected to be announced in this year's Budget and will then go out to consultation.
By Helen Adkins
Source: Caterer & Hotelkeeper magazine, 20 - 26 March 2003
