Tenants face stamp duty bills under periodic tenancies – Financial Times

The government is apparently working on a fix to an anomaly in the Renters’ Rights Act that could see huge numbers of tenants paying stamp duty.

According to the Financial Times, under current tax rules, an indefinite or periodic tenancy requires a stamp duty land tax calculation each year.

Liability is triggered once cumulative rent paid reaches £125,000, at which point tax becomes due.

To illustrate the point, the newspaper highlights a student let in London with eight friends paying £1,000 a month. That would equate to £96,000 annually and under the Act, the students would be a facing a stamp duty bill of £573 just after a year.

Tenants will face the bill from May when assured shorthold tenancies are scrapped and replaced with periodic tenancies.

Stamp duty on leases

The Financial Times reports that around 150,000 private renting households could fall within scope within three years, rising to 250,000 by 2031 as tenancies roll on.

Stamp duty on leases is charged at 1% of the net present value of rent above the £125,000 threshold.

While the sums involved are usually small, the administrative burden is not.

Tenants would need to calculate and submit returns annually; a process the paper says they are likely to expect or understand.

Tenants will need to file a return

Tenants will also need to know that late filing attracts an automatic £100 penalty, rising to £200 after three months.

However, reaching the stamp duty threshold would take time for most renters.

The average London tenant would need around six years of occupation before cumulative rent hits £125,000.

Periodic tenancies could be liable

A government official confirmed to the FT that newly defined periodic tenancies could become liable but said the vast majority of private tenants would never reach that point.

The official added that where a lease is renewed following renegotiation, the term is treated as starting again, limiting exposure.

They also said that any changes needed to ‘accommodate the new tenancy system’ would be announced in a Budget.

One option under consideration would be to delay filing and payment until the stamp duty due reaches £5,000.

That would restrict liability to high-value properties after many years of occupation.

A government spokesperson told the FT: “The department is aware of the potential issue, and we are looking at how best to resolve [it].

“It is not an immediate problem for any tenant.

“No one will be affected until the rent they are paying is worth more than £125,000 — which would take most tenants more than seven years.”