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HMRC internal manual

Stamp Duty Land Tax Manual

Chargeable Consideration: Rent: Inclusive of services etc

Service charges payable from tenant to landlord are a payment for the services the tenant will use during the lease. As such, service charges are not rent and therefore are not chargeable consideration for SDLT purposes and are excluded from the calculation of tax as long as payment of service charge has been either:

  • provided for in the lease as a separate figure or
  • expressed in the lease as part of an inclusive rent payment and apportioned on a just and reasonable basis.

The fact that a service charge is reserved in the lease as rent does not make it rent for SDLT purposes.

Where apportionment of an inclusive figure is needed, this must be made on a just and reasonable basis for SDLT purposes and will not necessarily be the same as the apportionment (if any) set out in the lease documentation.

Where a single sum is payable in respect of rent or of rent and service charges and:

  • there is no apportionment between rent and service charge and/ or
  • the service charge is not separately provided for in the terms of the lease, then the sum is to be treated entirely as rent for SDLT purposes.

Service charges are the most common item of non-chargeable consideration for a lease, but the above treatment applies equally to other non-chargeable consideration, underFA03/SCH17A/PARA6.

Refer to FA03/SCH4/PARA4 re: just and reasonable apportionment.

Refer to SDLTM11060 re: non-chargeable consideration.

Example 1

The terms of a lease are that rent of £1,000 per month is payable. The landlord has agreed that this will include payment for services, but this is not expressly provided for in the lease.

The fact that a service charge is reserved in the lease as rent does not necessarily make it rent for stamp duty land tax purposes. However in this case the service charge has not been provided for in the terms of the lease, either as a separate figure or as part of an inclusive figure of rent which is apportioned.

The £1,000 is therefore treated as rent.

Example 2

The terms of a lease are that rent of £1,000 per month is payable, inclusive of services.

Although the rent amount is expressed in the lease as being inclusive of services, no apportionment has been made between the two elements.

A just and reasonable apportionment for stamp duty land tax purposes need not be made in the lease itself, but must be included in the return and documentation of the basis of apportionment kept in case of query.

Example 3

The terms of a lease are that rent of £1,000 per month is payable, including £200 for services. This represents a fair amount for services as the market rent for a similarproperty without services would be £800.

Although the whole £1,000 is reserved as rent, a distinct amount is identified in the lease as being for services and this apportionment is on a just and reasonable basis.

Only £800 is therefore treated as rent for stamp duty land tax purposes.

Example 4

The terms of a lease are that rent of £2,000 per month is payable, including £1,200 for services. The market rent for a similar property without services would be £1,800 and services would be £200.

Although the £2,000 is expressed as being both for rent and services and there is an apportionment, this is not on a just and reasonable basis. In such cases, the SDLT legislation provides for tax to be calculated on the basis of a just and reasonable apportionment. £200 would be accepted as a reasonable amount to be apportioned to services, leaving £1,800 apportioned to rent.