Under plans unveiled in yesterday's budget, businesses will be liable for tax at 1% of the net present value of the rental payments due under a new lease. Currently, they only pay 1% of the annual rent.

The move was widely condemned by the property industry. RICS Chief Executive, Louis Armstrong, said: " A rate of 1% over the lifetime of alease will add significantly to the lease duty currently paid by thoserenting commercial property. At a time when the commercial market is weakthis proposal could adversely effect landlords and tenants alike."

And Claire Higgins, Associate Director of Research at Colliers CRE was even more outspoken. She said: "This in effect is more damaging for the UK commercial property market than a mere rise in the rate of stamp duty would have been. If taxation on leases is increased, the market will adjust accordingly and it is likely to result in shorter leases. The retail property sector as a whole will be the worst affected; in particular retail warehousing--the most successful sector in recent years in terms of UK property investment--as it is the only sector where lease lengths are consistently above 15 years."

But the decision to freeze stamp duty rates was seen as good news for the fragile residential property market. Tony Burdett, Director of Research and Information, at Chesterton said: "It will be a boost for the London market in particular, and avoids the double whammy of war in Iraq and rising transaction taxes. The freezing of rates should lay the ground for a recovery in transaction volumes and untimately a reversal of recent price falls in London.