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HMRC internal manual

Stamp Duty Land Tax Manual

HM Revenue & Customs
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Miscellaneous Provisions: Substantial performance of an agreement: Example 1

A non- residential agreement for lease is exchanged on 1 January 2005 and is substantially performed on 1 February 2005. The term of the lease is 10 years from the date that the lease is to be granted (which is not known) at a rent of £210,000 per annum. There is a rent review to market rent at the end of the fifth year. The lease is subsequently granted on 1 May 2005.

The agreement for lease is for an indefinite term so is notifiable as a notional lease for a term of one year (1 February 2005 to 31 January 2006) no later than 2 March 2005 (30 days after substantial performance). The rent of £210,000 has a net present value (NPV) of £202,898 (above the £150,000 threshold) and tax of £528 is payable.

On the date of grant of the lease, 1 May 2005, the notional lease is regarded as having been surrendered. Notification of the grant of the lease must be made no later than 31 May 2005. The term of the lease to be notified is 1 May 2005 to 30 April 2014. As the rent review occurs at the end of the fifth year it is not taken into account for the NPV calculation (refer to SDLTM13160)

There is an overlap period that runs from 1 May 2005 to 31 January 2006 that is common to the notional lease and the lease, for which ‘overlap’ relief is due (refer to SDLTM16010).

Overlap relief is not a claimed relief and is not obtained by answering yes to Question 9 on a land transaction return. In this case it would be obtained by reporting only the rent payable in the first year of the lease for the period from 1 February 2006 to 30 April 2006. That is the part of the first year of the term of the lease that is not common to the notional lease. The rent payable in year 1 for the purpose of the NPV calculation is £51,205 (£210,000 x 89/365). The rent for the remainder of the term for the purpose of the NPV calculation is taken as £210,000. The NPV of the lease is £1,593,061 on which tax of £14,430 is payable.