The cost of stamp duty

Most of us come across stamp duty when we buy a home – the extra hike on the price of the property concentrates the mind when considering how much you really want to spend.

Tenancies have been liable for stamp duty since the 1891 Stamp Act. Not paying stamp duty on the tenancy doesn't invalidate the document, but it does prevent courts from admitting the agreement as evidence.

Stamp duty was payable on all tenancies where the rent level is under £5000 a year, agreed before March 2000. This means that although most new tenancies are not affected, the vast majority of old ones are.

Because this aspect of the law was not widely known, local authorities were essentially getting away with not paying stamp duty, my employer, Camden, among them – that is, until April 2002, when Central London County Court invited its users to a meeting to discuss the issue.

The meeting made it clear that the county courts would insist on seeing stamped tenancy agreements from December of last year.

Camden sought legal opinion from Kelvin Rutledge, a leading housing barrister, who confirmed that stamp duty was payable on tenancies – and furthermore, that a penalty would have to be paid on all those paid late.

Camden has set up a procedure for duty to be paid on its tenancy agreements prior to any court hearing. This has involved setting up a suspense account with the Inland Revenue, although all tenancy agreements have to be taken in person to the Inland Revenue office for stamping. As we are doing this on a weekly basis, as and when cases are due in court, this has a massive impact on staff time.

The cost of the duty varies according to the length of the tenancy and the yearly rental. Also, the Inland Revenue rounds it up to the nearest £1 or £5 depending on when the tenancy started and the penalty for late payment.

Camden estimates that, based on the number of court cases last year and the average duty payable in each case, annual costs will be in the region of £50,000.

These costs, however, need to be balanced against the risk of cases being thrown out of court. Soon after the directive went out, Camden had a list of cases at Central London County Court. The judge questioned whether the tenancy agreements were stamped before he started the possession list. He commented that in a list involving another authority earlier in the week, they hadn't been, so he had thrown them out.

The bottom line is, who bears the additional cost? Ultimately, tenants will pay because of the increased charge to the housing revenue account – surely a matter for review in the forthcoming budget.

Stamp duty was one of a number of issues raised recently with ODPM minister Barbara Roche when she visited Camden to discuss how central government's bureaucratic demands on local government can be minimised. In the meantime, we have raised the amount we seek in costs as a means of recovering some of the charges.