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HMRC internal manual

Stamp Duty Land Tax Manual

Chargeable Consideration: Deposit and loan arrangements

Since 19 May 2005 (FA03/SCH17A/PARA18A), where a tenant makes a loan or pays a deposit (whether to the landlord or to a third party) the repayment of which is contingent on anything to be done or not to be done by the tenant:-

  • the amount of the loan or deposit is to be treated as consideration other than rent (premium) paid by the tenant for the grant of the lease.
  • except where the amount of the deposit does not exceed twice the relevant maximum rent (being the highest rent payable in respect of any continuous 12 month period during the first five years of the term of the lease), in which case it is ignored for the purposes of SDLT..

The same provisions apply to loans made or deposits paid by an assignee in connection with the assignment of a lease. In this case the relevant maximum rent is the highest rent payable in respect of any continuous 12 month period during the first five years of the term remaining outstanding as at the assignment date.

SDLT is calculated on the full amount of this notional premium, disregarding any repayment of the loan or deposit.

Example 1

A lease of non-residential property is granted on 1 June 2015 for a term of 10 years at an annual rent of £50,000 subject to review on 1 June 2020. The tenant pays a rent deposit of £25,000 to the landlord on the grant of the lease.

The relevant maximum rent is £50,000 (the annual rent).

As the rent deposit is less than twice the relevant maximum rent it is not treated as consideration other than rent (premium) for the grant of the lease. Stamp duty land tax is only chargeable on the net present value of the rent.

Example 2

A residential lease is granted on 1 June 2017 for a premium of £60,000 for a term of 99 years at an annual rent of £1,000. The premium of £60,000 is taxable at 0% because it does not exceed the residential 0% rate threshold.

The tenant also pays a rent deposit of £5,000 as security for the payment of a separately reserved service charge. As this exceeds twice the relevant maximum rent of £1,000, it is treated as a premium payment for the purposes of calculating stamp duty land tax (SDLT). As the total consideration other than rent (premium plus notional premium) does not exceed the residential 0% rate threshold, no tax is due.

The net present value of the rent is below the residential threshold and is, therefore, not taxable.

Example 3

A residential lease is granted on 1 June 2017 for a term of 99 years for a premium of £115,000 and at an annual rent of £1,000. The tenant pays a rent deposit of £15,000 as security for the payment of a separately reserved service charge.

The rent deposit is more than twice the relevant maximum rent of £1,000 so is treated as a premium paid by the tenant for the grant of the lease. This notional premium £15,000 plus the premium £115,000 = total chargeable consideration £130,000 which exceeds the residential threshold of £125,000. The notional premium is therefore taxable at 2%.

The net present value of the rent is below the residential threshold and is therefore not taxable.

Example 4

A lease of non-residential property is granted on 1 June 2017 for a term of 15 years at an annual rent of £15,000 subject to review on 1 June 2022 and 1 June 2027 to 30% of the open market rent. On the grant of the lease the tenant pays a rent deposit of £200,000 as a disguised premium for the grant of the lease.

The rent review provisions are disregarded and relevant maximum rent is £15,000.

The rent deposit is more than twice the relevant maximum rent. It also exceeds the non- residential 0% threshold and is therefore taxable.

The net present value of the rent is also taxable, as it too exceeds the 0% threshold