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HMRC internal manual

Stamp Duty Land Tax Manual

Notification: Grant of a lease

When a lease is granted (or a notional lease is treated as having been granted –refer to SDLTM10045), it should be notified to HM Revenue andCustoms (HMRC) on form SDLT1 (and form SDLT4 if necessary) where:-

  • the lease (or deemed lease), when granted, is for a term of seven years or more and the grant is for chargeable consideration (refer to FA03/S77(2)(a) and SDLTM11000) or
  • the lease (or deemed lease) is for a term of less than seven years and tax is chargeable at a rate of 1% or higher on either or both of any premium or rent (or would be so chargeable but for the availability of a relief) (refer toFA03/S77(2)(b) and SDLTM13000).

The return must be delivered to HMRC within 30 days of the effective date of the lease.For further details of effective date refer to [When a lease is granted (or a notional lease is treated as having been granted –refer to SDLTM10045), it should be notified to HM Revenue andCustoms (HMRC) on form SDLT1 (and form SDLT4 if necessary) where:-

  • the lease (or deemed lease), when granted, is for a term of seven years or more and the grant is for chargeable consideration (refer to FA03/S77(2)(a) and SDLTM11000) or
  • the lease (or deemed lease) is for a term of less than seven years and tax is chargeable at a rate of 1% or higher on either or both of any premium or rent (or would be so chargeable but for the availability of a relief) (refer toFA03/S77(2)(b) and SDLTM13000).

The return must be delivered to HMRC within 30 days of the effective date of the lease.For further details of effective date refer to](https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm07600) to SDLTM07750.

Example 1

A 99-year residential lease is granted for a premium of £100,000 and annual rent of £500 on 1 July 2015.

Although there is no tax to pay (as the premium and net present value of rent are both below the then residential threshold of £125,000), the lease is:

  • for seven years or more and
  • for chargeable consideration including a premium of £40,000 or more. This means that the relevant rent being under £1,000 is not relevant in this case

so is notifiable.

This lease should be notified within 30 days of grant (by 31 July 2015).

Example 2

A 1 year residential shorthold tenancy is granted for a rent of £600 per month on 1 July 2015. This lease is not notifiable, as:

  • it is for a term of less than seven years, and
  • tax is not chargeable at a rate of 1% or more on the consideration.

Example 3

An agreement for a non-residential lease is entered into. The lease will be for 10 years from and including the date of grant of the lease, at a rent of £200,000 per annum. The tenant substantially performs the agreement by taking possession of the premises on 1 July 2015 and pays rent in accordance with the agreement at a rate of £200,000 per annum. In the agreement for lease, this payment may be expressed as a licence fee payable for occupation during the period prior to actual completion of the lease. For stamp duty land tax purposes it is treated as rent payable under a notional lease (refer to SDLTM11010).

As the date of actual grant is not known, this notional lease is treated as being for an indefinite term, so is treated as a lease for one year (refer to SDLTM14050).The net present value of the rent of this one-year lease is £193,236 and so is above the non residential threshold of £150,000.

A notional lease such as this must be notified if it meets the normal notification criteria. As this notional lease:

  • is for a term of less than seven years, and
  • tax is chargeable at the appropriate rate on the consideration
  • it must be notified within 30 days of the effective date, in this case the date of substantial performance (by 31 July 2015).

Refer to SDLTM17010 for details of substantial performance of agreements for lease.

Example 4

An agreement for a non-residential lease is entered into. The lease will be for 10 years from and including the date of grant of the lease, at a rent of £100,000 per annum. The tenant substantially performs the agreement by taking possession of the premises on 1 July 2015, and pays rent in accordance with the agreement at a rate of £100,000 per annum. In the agreement for lease, this payment may be expressed as a licence fee payable for occupation during the period prior to actual completion of the lease. For stamp duty land tax purposes it is treated as rent payable under a notional lease (refer to SDLTM11010).

As the date of actual grant is not known, the notional lease is for an indefinite term, so is treated as a lease for one year (refer to SDLTM14050).

A notional lease such as this must be notified if it meets the normal notification criteria.

The net present value of the rent of this 1 year lease is £96,618 and so is below the non residential threshold of £150,000. This notional lease does not have to be notified as:

  • it is for a term of less than seven years, and
  • tax is not chargeable on the consideration.

Refer to SDLTM17010 for details of substantial performance of agreements for lease.

Example 5

An agreement for a non-residential lease is entered into. The lease will be for the period from and including the date of grant until 30 June 2025 at a rent of £100,000 per annum.The tenant substantially performs the agreement by taking possession of the premises on 1 July 2015 and pays rent in accordance with the agreement at a rate of £100,000 per annum.

In the agreement for lease, this payment may be expressed as a licence fee payable for occupation during the period prior to actual completion of the lease. For stamp duty land tax purposes it is treated as rent payable under a notional lease (refer to SDLTM11010).

The notional lease is for a fixed term of 10 years (from and including 1 July 2015 to 30 June 2025).

A notional lease such as this must be notified if it meets the normal notification criteria. As it is:

  • for a term of seven years or more, and
  • granted for chargeable consideration,

it must be notified within 30 days of the effective date, in this case the date of substantial performance (so by 31 July 2015).

Refer to SDLTM17010 for details of substantial performance of agreements for lease. Refer to SDLTM07600 to SDLTM07750 for details of effective date.

Example 6

A residential 25-year lease is granted for rent of one peppercorn per annum.

Although the lease is for more than 7 years, there is no chargeable consideration (although a peppercorn is consideration, it is not considered chargeable consideration for the purposes of stamp duty land tax – refer to SDLTM11010).

Notification is therefore not required.