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HMRC internal manual

Stamp Duty Land Tax Manual

HM Revenue & Customs
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Calculation of stamp duty: Rent: Variable or uncertain rent: Example 6

A lease is granted on 1 April 2004 for a term of seven years, with the annual rent figures set at 10% of turnover.

Initial estimates of turnover in the business plan for the first seven years give rental estimates of:

Year 1 £22,500
Year 2 £22,500
Year 3 £23,000
Year 4 £25,000
Year 5 £27,000
Year 6 £30,000
Year 7 £31,000

Because the rent is variable, the calculation of net present value (NPV) is based on the estimated figures of rent for each of the first five years only, with NPV for years 6 and 7 being based on the highest (estimated) rent paid in any twelve - month period in the first five years (in this example months 49 - 60).

The figures of rent for the NPV calculation are therefore:

Year 1 £22,500
Year 2 £22,500
Year 3 £23,000
Year 4 £25,000
Year 5 £27,000
Year 6 £27,000
Year 7 £27,000

On this basis a return is made showing a NPV of £151,193.

Estimates of uncertain rents must be reviewed at the end of the fifth term of the lease, even if the amount of rent remains uncertain at that date. If the whole rent for the first five years is not fully determined at this point, the actual rent should be used for years where it is known and the estimates for other years reconsidered. The highest figure (actual or estimated) should be used for later years. In this case, turnover for year 5 is not known as at 31 March 2009, but accounts have been prepared for years 1 to 4 inclusive. A revised estimate must be made of the total rent for the 7-year period, as follows:

Year1 (Actual) £23,035
Year 2 (Actual) £21,252
Year 3 (Actual) £24,077
Year 4 (Actual) £27,045
Year 5 (Estimate) £25,000
Year 6 (Highest) £27,045
Year 7 (Highest) £27,045

As this exceeds the estimate already returned, an additional return is required by 30 April 2009 (by way of letter to The Compliance Team, Birmingham Stamp Office (this address is available within the contact us pages of the HMRC website.)

Once the actual rent for all the first five years is known, the return should be revised to actual figures and extra tax paid to prevent penalties accruing. So in this case if rents in years 1 to 4 are known but rent in year 5 is not known until 1 September 2009, the following returns are needed:

  • by 1 May 2009: the revised NPV of £151,686 should be reported by letter to Birmingham Stamp Office.
  • by 1 October 2009: recalculate NPV based on year 5 actual rent of £28,673. The return should be revised (by way of letter to The Compliance Team, Birmingham Stamp Office) to the actual NPV of £157,383 to prevent penalties accruing.