Mounting criticism over new stamp duty plan

Pressure is increasing on the Government to scrap its controversial plan to charge stamp duty on hotel and pub leases.

The tax, unveiled by Chancellor Gordon Brown in April's Budget, is being scrutinised this week by a House of Commons committee, following criticism that it could severely increase the cost of long leases in the industry.

The new Stamp Duty Land Tax is due to replace stamp duty on all property transactions from the end of this year.

It will mean stamp duty will be charged at a fixed rate of 1% based on the net present value of the lease rentals, calculated over the life of the lease.

Mark Prisk, shadow financial secretary to the Treasury, attacked the idea as "ill-conceived and ill-considered".

He said: "The new tax will be charged on the whole length of the lease, hitting those on longer leases the hardest.

Pubs, clubs, restaurants and many other businesses will see tax bills increase by between four and 10 times the next time they lease or buy premises.

"This threatens permanent closing time for many pubs and restaurants across Britain."

He also criticised the Government's decision last Friday to "guillotine" debate on the new measure, claiming there was not enough Parliamentary time to discuss it.

Hotel consultant Insignia Hotels has been a stern critic of the measure, arguing in May that it could sound the death knell for turnover-based and long leases in the industry.

It also condemned the guillotine decision, pointing out that when the proposal was introduced the Government promised there would be a period of consultation.

Chris Rouse, Insignia Hotels director, said: "The Budget proposals impose a draconian new tax on a fundamental part of the whole industry's infrastructure.

The Government's action in pushing these changes through, without the promised consultation is outrageous."

Insignia has estimated that, under the proposed changes, the stamp duty incurred upon the grant of a 35-year lease could be 10 times higher than under the existing regime.

For example, on a 35-year lease with a rental of £1m plus VAT, duty will increase from £20,000 to £230,000.

In the case of ground rent leases, a typical 99-year lease would incur an increase in stamp duty payable of more than 400%, said Insignia.

by Nic Paton