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Stamp Duty Land Tax (SDLT) is sometimes payable by tenants on leases. The SDLT payable is determined by the value of the lease, which is calculated based on any premium paid, the rent payable and the length of the lease. SDLT is more likely to be payable with medium to longer term leases or when the rents are higher.
The SDLT becomes payable on the ‘effective date’ of the lease. This is usually the date of completion of the lease, though this date can sometimes vary if there has been ‘substantial performance’ before completion. The current filing deadline is 14 days from the effective date of the transaction. If SDLT is payable then an SDLT form will need to be lodged with HMRC within the relevant time frames along with any payment due.
Please note that whether or not SDLT is payable on your lease transaction, an SDLT form will still need to be filed with HMRC if the lease is for a term of seven years or longer.
Should you have any concerns regarding SDLT issues please do not hesitate to contact our commercial property solicitors on 01616 966 229 or complete our online enquiry form and we will contact you directly.
There are a number of circumstances during the term of your lease when SDLT may again become payable. It is imperative that you are aware of these circumstances as HMRC are becoming more and more aggressive in their pursuit of individuals and companies who have avoided, forgotten or simply not been aware that an SDLT payment has become due. You could be liable to fines and interest payments if you fail to correctly pay SDLT when due. The Inland Revenue have the ability to query for many years after they were due, and this gives them a large amount of leeway to chase missed SDLT payments.
Below are a number of circumstances which may arise during, or at the end of your current lease, and which may give rise to an SDLT liability. Should you require any advice in respect of the same either now, or at any stage in the future, please do not hesitate to contact us closer for further advice. Please note that the responsibility for SDLT payments is your own and not knowing the rules will not be a valid excuse for HMRC.
The SDLT payable on a lease is calculated by reference to the first five years’ rent. Therefore, if you have a rent review within the first five years and the new rent amount was not known at the outset (for example where rents are to be reviewed in line with market rents or business results as at a future date, or index-linked) then an additional return may need to be filed once the revised rent is determined. A further payment of SDLT may also be due at that stage.
Accordingly it is advisable to seek advice prior to or on the determination of any rent review, to ascertain the likely SDLT implications and whether any payments are required.
If your original lease term expires, but you continue in occupation of the premises, then you are deemed to be ‘holding over’ your lease. Once your lease continues after its contractual expiry date then it is treated as if the original term of your Lease has been extended by one year. i.e. a five year lease will be treated as a six year lease. If SDLT was paid at the start of your lease (or if the extra year takes the lease over the SDLT threshold), then at this stage a further SDLT payment will be required and will need to be filed with HMRC. For each subsequent year that the lease is ‘held over’ another SDLT form needs to be filed. This is known as the growing lease regime. Failure to file further returns within the relevant short timescales could could result in fines.
Unless your lease is expressly excluded from the Landlord and Tenant Act 1954, then as a commercial tenant, you are entitled to a new lease (on substantially the same terms) at the expiry of your current lease. Such renewal leases could have SDLT implications.
You should always seek legal advice when taking a renewal lease as you have numerous rights to which you will be entitled. SDLT issues will also apply in this scenario.
If you agree to extend the term or the extent of the land included in your lease, then the extension is treated as a surrender and re-grant, and SDLT may be payable on the value of the re-granted lease.
Please note that if you decide to break your lease early, you are not entitled to get any money back from HMRC, despite having paid SDLT for the full lease term.
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