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Cut down on stamp duty land tax bills

Lynne Abbess explains how to avoid costly tax traps on surgery shares and new leases.

Stamp duty land tax (SDLT) has been with us for more than two years yet unwary GPs are still falling into hidden traps that cost them dearly.

Until 1 December 2003, when SDLT came into force, the stamp duty regime was a relatively innocuous matter.

For GPs, stamp duty's essential ingredients were firstly that it was a tax on documents rather than on property transactions. Secondly, the duty payable on a surgery lease was limited to 1 per cent for leases of seven years or less, or 2 per cent of the average rent payable throughout the lease term for longer leases. Unless specific alternative figures were calculated and recorded in advance, this would usually be based on the first year's rent.

Painful lessons

At a stroke, SDLT radically reformed these principles, leaving many GPs to count the cost all too painfully.

Most people can understand that if you are buying a property on the open market and paying a capital sum for it, SDLT - as in the case of stamp duty - would be payable if the price paid is above a certain threshold.

However, the area where GPs are most likely to be caught out relates to the transfers of surgery premises shares and leases.

In share transfers, this is particularly the case when a new partner does not require a new mortgage. For example, they are simply accepting a transfer of the surgery mortgage representing the value of a retired partner's premises share.

Here the temptation is to treat this transaction simply as an accounting entry in the belief that the deal has been successfully concluded.

Unfortunately, that is not the view HM Revenue and Customs takes of the situation. The tax is payable not only on the value of any equity (that is, the value of the property in excess of the mortgage share) which changes hands; it is also payable in respect of the mortgage itself.

If this seems rather confusing, an example may help to make the SDLT trap clearer. Suppose there is a transfer between partners of 50 per cent of a surgery property valued at £500,000 with a mortgage of £300,000.

Half, or £150,000, of the mortgage is being transferred and the partner buying pays the other partner £100,000 in cash (which is perhaps raised by means of arranging further mortgage finance).

Transfer value

As the minimum threshold for SDLT is £150,000, you might think that the transaction will generate zero tax because the £100,000 cash falls beneath the limit. However, if the mortgage is being transferred as part of the total deal, the actual value being transferred is £250,000. The purchasing partner will owe SDLT of £2,500 (that is, 1 per cent of £250,000).

A further catch is that if you fail to disclose the transaction to Revenue and Customs (on a form that runs to 70 questions) within 30 days of the transaction taking place, you will pay an automatic penalty of £100 plus interest.

The second arm of the 2003 stamp duty reform that particularly affects GPs relates to leased premises.

The GP profession is somewhat unusual these days in entering into what are regarded by many property advisers as long leases (perhaps too long) with regard to their premises. Third-party developers operating in the healthcare market will usually seek at least a 20-year term.

Leases under the LIFT scheme are routinely granted (at head lessee level) for 25 years. The good news is that the SDLT rate on leases is 1 per cent rather than stamp duty's 2 per cent (less a discount of approximately 3.5 per cent of the total figure calculated to reflect inflation).

Lease factors

However, the bad news is that SDLT is not calculated on the initial average rent alone. It is based on a multiple of the annual rent times the length of the term. A supplement may also be payable five years into the term if the rent has been reviewed in the interim.

The box (below left) shows the huge impact this has made on GP tenants' leases. This is even more the case in LIFT leases where the rent (the 'lease payment') is higher than ordinary bricks-and-mortar rent. Ironically, the aim of the SDLT reform, which was to drive down the length of leases to make them more tenant-friendly, has been lost on the NHS market.

Any GP who is contemplating leased premises should ask at the outset of proceedings for calculation of the SDLT. It would be fatal to leave this matter until all of the other negotiations have been concluded because you could be faced with an unbudgeted-for bill that runs to many thousands of pounds.

Depending on the nature of the project, it may be possible to persuade your primary care organisation to fund the SDLT. Or, in the case of a third-party lease, you might be able to stipulate that the developer will reimburse any SDLT that the practice pays.

However, saying nothing about this until the lease has been signed means that you will lose this opportunity.

Early advice

SDLT is not something to be put to the bottom of the worry list if you are a premises-owning GP while concerning yourself mainly with mortgage interest rates.

Nor is it a good idea, if taking on a lease, to fret about the intricacies of tenants' covenants but fail to ask about the SDLT bill.

Seeking advice early can mean that the structure of your premises transaction may be tailored to minimise or even legitimately avoid paying SDLT. So do not allow your practice to be caught out. An SDLT trap is an expensive way to learn a lesson.

- Lynne Abbess is a partner with medical specialist solicitors Hempsons in London, www.hempsons.co.uk


From 17 March 2005 on land and buildings

Purchases of non-residential property

Rate Transaction value
Zero £0 to £150,000
1% £150,001 to £250,000
3% £250,001 to £500,000
4% £500,001 or more

New non-residential leases
Rate Net present value of rent
Zero £0 to £150,000
1% £150,001 or more


Effects of different regimes on premises with rent of £100,000 pa

Lease SDLT payable Old stamp duty payable(1)
Three years £1,301 £1,000
Twenty years £12,712(2) £2,000
Twenty-five years £14,981(2) £2,000

(1) Under old stamp duty regime now superseded.
(2) May be subject to an additional payment five years after the term
commences if the rent has increased in the interim.


- Stamp duty land tax (SDLT) replaced stamp duty on buying or leasing residential and non-residential land and property in December 2003.

- It is a tax on the value of transactions taking place, rather than on the documents involved.

- For non-residential property, the exempt value threshold is £150,000 (residential threshold is £120,000).

- For GP purchasers, SDLT is payable when a departing partner transfers their premises share to the remaining partners or to a new partner. The tax is also payable when a current or a new partner transfers a premises share into the partnership.

- It can be difficult to recognise when a taxable premises share transfer has taken place (see text).

- SDLT applies to any lease a practice takes on where the transaction includes rent which is above the threshold.

- The way in which SDLT is calculated on leases can mean much higher duty to pay than was previously the case under the old stamp duty regime.

- For more information visit www.businesslink.gov.uk or call HM Revenue & Customs Stamp Taxes Enquiry Line on 0845 603 0135.

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