Calculation of Stamp Duty Land Tax (SDLT): Rent: Variable or uncertain rent: Turnover leases
Where all or part of the rent payable under a lease is linked to business results, such as figures of profit or turnover (‘turnover lease’), the rent is variable and will always be uncertain at the date of grant. For the purposes of calculating net present value (NPV) for the first five years, a reasonable estimate should therefore be made of the amount payable (FA03/S51(2)). This need not necessarily be a professional valuation, but evidence of the basis of the estimate must be kept in case of query. .
In the case of turnover leases, it is unlikely that the rent will be known at the review date (at the end of year five or end of the lease term if earlier), as the latest results are unlikely to be finalised. Further returns will therefore be required:
- at the review date (at the end of year five or end of the lease term if earlier) and
- when all rent due in the first five years (or term of the lease if shorter) is finally known.
An initial return should be completed and submitted within 30 days of the grant of the lease. The NPV of rents should be calculated as follows:-
- Where it is not known at the date of grant, a reasonable estimate of the rent payable for each of the first five years of the lease should be used
- the highest actual or estimated rent payable in respect of any consecutive twelve month period during the first five years of the lease should be used for subsequent years. All potential rent increases after the five-year period are ignored for stamp duty land tax (SDLT) purposes.
At the end of five years (or end of the lease term if earlier)
A return is required (by way of letter to The Compliance Team, Birmingham Stamp Office (the address is available within the contact us pages of the HMRC website) within 30 days of the five year point (or expiry of the lease if earlier), including a revised NPV calculation. The revised NPV should be based on the actual rent paid in respect of the first five years (or period of lease if shorter), or revised estimates of rent for periods for which accounts have not been finalised. The figure of highest rent should also be revised as necessary.
Interest payable on any additional tax due is calculated from the filing date (30 days from the effective date) of the original transaction when the lease was granted - see FA03/S87(3)(c). Interest on overpaid tax is calculated from the date it was originally paid - see FA03/S89. Further return where second return includes estimated figures
Once the actual figure of rent is known (for example once accounts are finalised), a revised return must be made to prevent a penalty accruing under FA03/SCH10/PARA8. This revised return should use the final figures of known rent and a revised figure for highest rent in any consecutive 12 month period, if necessary, to re-calculate NPV. This return should be submitted, again to The Compliance Team, Birmingham Stamp Office, within 30 days of the final determination of the rent payable in the first five years of the term of the lease. Interest payable on any additional tax due is calculated from the filing date (30 days from the effective date) of the original transaction when the lease was granted.
Years of lease term after year five
Each increase of rent after year five must be reviewed to ensure it is not ‘abnormal’ for SDLT purposes. .
Refer to example at SDLTM13225.