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HMRC internal manual

Stamp Duty Land Tax Manual

Calculation of Stamp Duty Land Tax (SDLT): Rent: Variable or uncertain rent: Five-year rent reviews

Under FA03/SCH17A/PARA7A, a rent review is treated as falling after the end of the fifth year of the lease term, so is effectively disregarded for stamp duty land tax purposes, if:

  • it is the first or only review
  • review is to an amount which is unascertainable in advance (e.g. market rent)
  • the review date is five years after a specified date (e.g. ‘start date’ of lease predating grant), and
  • the specified date falls within three months before the beginning of the lease term.

The outcome of the first rent review during the term of a lease will therefore be ignored if that rent review is after the date 4 years and 9 months from the start of the lease term.

The legislation refers to a ‘specified date’ so this provision only applies where the five-year review is provided for in the terms of the lease. However in practice HM Revenue & Customs accepts that the provision applies to any reviews falling within the last three months of the fifth year of the lease.

Example 1

A lease is granted on 11 July 2015 for a term of 10 years from 25 June 2015 (within 3 months of the commencement) at a rent of £35,000 per annum, with a rent review to open market rent on the fifth anniversary of the start date. The lease term for SDLT purposes commences on the date of grant (SDLTM14060).

As the first rent review on 25 June 2020 falls within five years of the date of grant, an estimate of the rent payable from 25 June 2020 would normally be required for the purposes of establishing the rents for years 6 to 10 and the net present value (NPV) calculation. However, as the rent review meets all the criteria at FA03/SCH17A/PARA7A, it is treated as falling after the end of the fifth year of the term, so is disregarded for the purposes of the NPV calculation.

The NPV is calculated using £35,000 as the rent payable for the entirety of the term, as it is the highest rent payable in the first five years.

Example 2

A lease granted on 26 September 2015 provides for a term starting on the June quarter day (24 June) with a rent review to open market rent on the fifth anniversary of the start date.

As 24 June 2015 is more than three months before 26 September 2015, the provisions of FA03/SCH17A/PARA7A do not apply

Example 3

An agreement for lease is entered into on 1 January 2018 for a rent of £100,000 per annum subject to review to market rent at 1 January 2023. It is substantially performed on 1 January 2018 so is treated as the grant of a notional lease beginning on 1 January 2018 with the term starting and ending on the dates stated in the actual lease under the provisions of FA03/SCH17A/PARA12A.

On 1 January 2020 a lease is granted pursuant to the agreement, this will be treated as linked to the notional lease and any additional SDLT will be due. Where the lessee of the actual lease if different to the lessee of the notional lease, the lessee of the actual lease is liable for any additional sums due

The review under the new lease takes place on 1 January 2012, which is only 3 years from the date of re-grant. The provisions of FA03/SCH17A/PARA7A do not therefore apply.