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HMRC internal manual

Stamp Duty Land Tax Manual

Notification: Continuation of a lease

Where an SDLT lease continues past its original term as outlined in SDLTM14060 or SDLTM14070, this may become notifiable in the following circumstances:

  1. The lease comes within the charge to stamp duty land tax (SDLT), once extended, as the net present value (NPV) of rents over the extended term exceeds the relevant threshold. This applies only to leases which, when granted, were for a term of less than seven years and were not chargeable to SDLT as consideration was below the tax threshold set out at FA03/S55. If, on continuation, the NPV of rents calculated over the extended term increases so that total consideration then exceeds the threshold, SDLT will become payable. Notification should be made on form SDLT1 and (where appropriate) supplementary forms in the normal way.
     
  2. The lease was notifiable on grant and the SDLT payable on the extended lease is greater than that previously notified. This applies where NPV over the extended term increases as at 1. above, but in cases where the original lease was notifiable (because the original term was seven years or more, or was less than seven years but the original consideration exceeded the threshold - refer to SDLTM12010). Under FA03/SCH17A/PARA3(5) andFA03/S77 (2)(a), it is the term of the lease when granted that is relevant.

Note that such a lease is not notifiable on extension merely because its term has‘grown’ to seven years or more.

Where a further notification is required, unless a new lease is granted, notification of the continuing lease must be made within 30 days of the end of each year of holding over (paragraph 3(3), Schedule 17A, Finance Act 2003. Notification should be by way of letter to the Stamp Office, giving details of the original and extended lease terms.

Irrespective of whether the original lease was for a fixed or indefinite term, the extended lease is treated as having been granted at the time of grant (or deemed grant) of the original lease and NPV calculations should be made on the basis that the extended lease was granted at this time. Any changes in thresholds, rates or reliefs since the date of grant (or deemed grant) have no effect on the tax due. If VAT was not chargeable on the rent at the date of grant (or deemed grant), the fact that VAT has since become payable is ignored.

Example 1

A 10-year non-residential lease within the Landlord and Tenant Act 1954 is granted from and including 1 December 2005, with annual rent of £50,000 per year. The net present value (NPV) on which tax is paid for this lease is £415,830. The non-residential threshold for NPV on 1 December 2005 was £150,000 and the tax rate 1%. Stamp duty land tax (SDLT) of £2,658 was paid when notification of the grant was made.

The tenant continues in occupation past 30 November 2015 whilst negotiating new terms with the landlord, and the lease continues beyond the fixed term by operation of law.

For SDLT purposes, the lease is treated as being extended by one year, so is now for a term of 11 years from 1 December 2005. The NPV is £450,077. Irrespective of any interim changes in rates, thresholds or reliefs, additional tax due on this 11-year lease is calculated using the rates, thresholds and reliefs in place at 1 December 2005. The additional tax due is:

£450,007 - £150,000 = £300,007

x 1% = £3,000

less already paid £2,658 = £342.

As more SDLT is due, this notional extended lease must be notified within 30 days of the end of the first year of holding over (that is on or before 31 December 2016) and the additional tax paid (by way of a letter to the Stamp Taxes).

For further details of the treatment of leases continuing beyond their fixed term, refer to SDLTM14070.

Example 2

A 10-year non-residential tenancy within the Landlord and Tenant Act 1954 is granted from and including 1 December 2005, with annual rent of £50,000 per year. The net present value (NPV) on which tax is paid for this lease is £415,830. The non-residential threshold for NPV as at 1 December 2005 was £150,000 and the tax rate 1%. Stamp duty land tax (SDLT) of £2,658 was paid when notification of the grant was made.

The tenant continues in occupation past 30 November 2015 whilst negotiating new terms with the landlord, and the lease continues beyond the fixed term by operation of law. The lease is treated for SDLT purposes as having been extended for one year. Treatment of this extension is covered in example 1 – refer to SDLTM14070.

The lease continues past 30 November 2016, again by operation of law, as negotiations are still continuing. For SDLT purposes, the lease is again treated as being extended by one year, so is now for a term of 12 years from 1 December 2005. The new NPV is £483,166.

As more SDLT is again due, this notional extended lease must be notified within 30 days of the end of the second year of holding over (that is on or before 31 December 2017) and the additional tax paid.

Irrespective of any interim changes in rates, thresholds or reliefs, additional tax due on this 12-year lease is calculated using the rates, thresholds and reliefs in place at 1 December 2005. The additional tax due is (£483,166 - £150,000 = £333,166 x 1% = £3,331 less already paid of £3,000 = £331 extra due).

Example 3

A residential tenancy is granted on 1 April 2015 for a term of three years at an annual rent of £30,000. The residential threshold at 1 April 2015 is £120,000 and the tax rate 1%. The lease is not initially notifiable as the net present value (NPV) of the rent is only £84,049, below the £120,000 threshold, and it is for a term of less than seven years.

The tenant stays in occupation past 31 March 2018 paying the same rent, and a new yearly tenancy is implied at law under Landlord and Tenant Act 1954.

On 1 April 2018, the lease is treated for stamp duty land tax purposes as having been extended by one year to a lease for a term of four years from and including 1 April 2015 (refer to SDLTM14070). The NPV of the extended lease is £110,192 and it is still not notifiable as this is still below the residential threshold. A return for this extension should be made by 1 May 2018.

If the tenant remains in occupation past 30 March 2019, the lease is now treated asbeing a 5 year lease from 1 April 2015. The NPV of this lease is £135,451. Tax is due on the amount above the residential threshold of £120,000 as it was at 1 April 2015 (1% of £15,451 = £154) and notification of this must be made and tax paid within 30 days of the effective date, in this case the date of notional extension of the lease (so by 1 May 2020).

[The fact that the residential threshold went up to £125,000 on 23 March 2016 is ignored, as it is the thresholds in place at the date of grant that are relevant].