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HMRC internal manual

Stamp Duty Land Tax Manual

Chargeable Consideration: Tenant's obligations

When a new lease is granted, the following do not count as chargeable consideration under FA03/SCH17A/PARA10:

  • any undertaking by the tenant to repair, maintain or insure the premises;
  • any undertaking by the tenant to pay any amount for services, repairs, maintenance or insurance or the landlord’s costs of management;
  • any other obligation undertaken by the tenant that is not such as to affect the rent that a tenant would pay in the open market;
  • any guarantee of the payment of rent or the performance of any other obligation of the tenant under the lease;
  • any penal rent, or increased rent in the nature of a penal rent, payable in respect of the breach of any obligation of the tenant under the lease.

The following are also excluded from chargeable consideration under SI 2006/875:

  • payment by a tenant of a landlord’s costs under the statutory provisions governing the enfranchisement or extension of leases of flats and long leases of houses, or an obligation to pay such costs;
  • payment by a tenant of a landlord’s other reasonable costs on or incidental to the grant of a lease, or an obligation to pay such costs (including of an extension to the lease, as this is treated in law as the grant of a new lease) (SI 2006/875);
  • an obligation on an agricultural tenant to surrender his or her entitlement to Single Farm Payment to the landlord on termination of the lease (SI 2006/875);

Payment by a tenant in discharge of any of the obligations noted above does not count as chargeable consideration.

The above payments are not chargeable consideration even if they are reserved as rent under the terms of the lease. However, where a single sum is provided for in the lease, to cover for example both rent and service charge, the amount excluded from chargeable consideration must be calculated according to the just and reasonable apportionment rules in FA03/SCH4/PARA4(1)(b) - refer to SDLTM11015 for details.

On surrender of a lease, payment to release a tenant from any of the above obligations is not chargeable consideration.

FA07 inserted new sections to FA03 which would apply where-

(a) one person (‘V’) disposes of a chargeable interest and another person (‘P’) acquires either the chargeable interest or a chargeable interest deriving from it;

(b) a number of transactions (including the disposal and acquisition) are involved in connection with the disposal and acquisition (these are referred to as “scheme transactions”);

(c) the sum of the amounts of SDLT payable in respect of the scheme transactions is less than the amount that would be payable on a notional land transaction effecting the acquisition of V’s chargeable interest by P.

The new sections replace SI 2006/3237 which came into force on 6 December 2006. The sections were introduced to deal with the development of schemes that used “break clauses” in leases in particular to avoid payment of SDLT. Further guidance on this legislation, which includes examples of “break clause” schemes to which the new provisions will apply, can be found on the SDLT Legislation and Guidance pages of the HM Revenue & Customs Stamps Taxes site. See also SDLTM01070 also(This content has been withheld because of exemptions in the Freedom of Information Act 2000) for guidance on how this legislation affects sub-sales.