The Renters’ Rights Act could unintentionally force hundreds of thousands of renters to pay stamp duty, according to an investigative financial group.

Tax Policy Associates explains that an ordinary tenancy requires a stamp duty calculation every year and must be paid if the tenancy lasts long enough. This is charged at 1% of the net present value (NPV) of the rent when rental payments exceed £125,000.

A one-year tenancy would need a very high rent of more than £10,500 a month to be affected meaning that only a few hundred renting households pay stamp duty.

Under the ‘growing lease’ rule, stamp duty initially treats the periodic tenancy as a one-year lease. But if the tenant stays another year, then on the one-year anniversary, the day-one NPV has to be recalculated as if it was two-year lease, and if the calculated NPV on any anniversary date exceeds £125,000 then stamp duty is due.

Scenario

From 1^st May, most residential tenancies in England will become periodic, and the scenario would soon impact a student house, for example, where tenants are paying almost £100,000 a year in rent. According to the analysis, the average tenant in London would reach the £125,000 cut-off after six years, based on current rental prices. They would then be handed a £70 stamp duty bill.

It says in the next three years, 150,000 households in private rental accommodation will have to pay and file every year for the rest of their tenancy. Many more will become liable to pay and file in the following years.

Small

Tax amounts will in most cases be very small, but calculating and filing the tax is something most people won’t anticipate and will find highly inconvenient, according to Tax Policy Associates. “Expecting ordinary people to understand the rules, monitor anniversary dates, carry out an NPV calculation and file and pay stamp duty is not realistic.”

A government spokesman tells The Telegraph: “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 the most tenants more than seven years.”

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