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HMRC internal manual

Stamp Duty Land Tax Manual

Variation of leases: Reducing the rent payable

Where a lease is varied so that the rent is reduced, the variation is treated under FA03/SCH17A/PARA15A(1) as the acquisition of a chargeable interest by the tenant.

As the tenant already has a major interest (the lease), a land transaction return is only required if the variation is for chargeable consideration exceeding the relevant threshold.

Example 1

L grants a lease to T:

  • of non-residential property
  • on 1 December 2000
  • for a term of 45 years
  • at a rent of £650,000 per annum
  • subject to upward only rent reviews every five years.

On 1 July 2015 T pays L £10,000,000 to reduce the rent for the remainder of the term to a peppercorn.

A land transaction return and payment of £400,000 tax would be required no later than 31 July 2015 as the payment by the tenant to the landlord to reduce the rent is liable to tax at 4% of £10,000,000.

Example 2

L grants a lease to T:

  • of non-residential property
  • at a rent of £100,000 a year
  • for a term of 10 years
  • with a tenant right to break at the fifth year.

In consideration of T agreeing not to exercise the break right, L agrees to reduce the rent to £80,000 a year.

Whether that agreement (not to exercise the break clause) is documented as a variation to the lease to remove the break right, or simply as a payment for T’s agreement not to exercise the right, there is a deemed variation of the lease under FA03/SCH17A/PARA15A(1) being the acquistion of a chargeable interest by the tenant.

However, T has not given any chargeable consideration for the acquisition (as the giving up of a right is not consideration in money or money’s worth under FA03/SCH4/PARA1).Therefore no SDLT is due and the transaction is not notifiable.