This is the latest twist in the legal battle waged by the National Housing Federation and the Housing Corporation against the Inland Revenue over the summer, over the impact of neglected 19th-century housing legislation.
The problem arose when Judge Nic Madge ruled in a number of recent cases at a west London court that the 1891 Stamp Act should be applied. This act means a court can request that stamp duty of 1% is paid on tenancy agreements made before March 2000 and worth more than £500 a year in rent – in effect, almost all of them – before the agreement can be terminated.
The situation is different for agreements made after March 2000, as the threshold for stamp duty was then changed to £5000 a year.
The 1891 law was largely forgotten by both tenants and landlords, so stamp duty has not been paid on most tenancy agreements. As a result, housing associations in areas with higher rents, such as London and south-east England, could face bills of up to £1m.
A number of predominantly south-eastern housing associations will be hit by the Inland Revenue’s ruling, including Network Housing Association, Ealing Family Housing Association and Notting Hill Housing Trust.
Genesis Housing Group chief executive Anu Vedi said: “The potential impact would make our provision of temporary accommodation financially unsustainable.”
National Housing Federation policy officer Bob Wilson said: “The Inland Revenue says it’s happy not to collect the money, but the law will not allow this. A ludicrous technicality means that we are still facing this charge.”
The NHF obtained legal opinion from lawyer Trowers and Hamlins, which states that existing law can be manipulated to allow the Inland Revenue to forego collection of the tax. Apparently, if existing leases can be shown to be very short-term, the tax can be avoided.
The tax body is considering legal opinion which backs up the NHF’s position, but is expected to reject the proposal this week.
The Inland Revenue tabled a proposal two weeks ago which would have seen the potential £2m bill reduced to £20,000, but this too was scuppered when it was found to break tax law.
An Inland Revenue spokesperson said: “[Stamp duty rules] are under review.
“The Inland Revenue [is] aware of representations from housing associations on this issue and discussions are ongoing.”
Source
Housing Today
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