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HMRC internal manual

Stamp Duty Land Tax Manual

Miscellaneous Provisions: ‘'Rent'’ payable for a period before grant

Although in law a lease cannot vest property retrospectively, the contractual term granted by a lease is sometimes expressed to take effect from a commencement date that is prior to the date of grant of the lease. This happens for example:

1. to bring the terms of connected leases in line for the purpose of unifying review, end and renewal dates. Leases of properties in the same parade or development may be granted on different dates but for administrative ease their terms may be calculated from the same start date. The landlord will not usually have the right to recover rent for the pre-grant period.
2. where a new lease is backdated to cover a period pre-grant when the tenant was in occupation, usually under an agreement for lease. Consideration may have been payable under the agreement, for example as a licence fee.
3. where a renewal lease is backdated to cover a period of ‘holding over’ (while the tenant remains in occupation after expiry of the old lease). The renewal lease is sometimes expressed to commence from the day after expiry of the old lease.

The general rule for stamp duty land tax (SDLT) purposes is that the term of a lease commences from the date it is granted (refer to SDLTM14015). One exception is backdated renewal leases under c) above. FA03/SCH17A/PARA9A disapplies the general rule in the case of leases:

* granted on or after 19 July 2006
* which are renewing a lease which was subject to SDLT when granted.

For SDLT purposes, the term of these leases commences on the date stated in the lease. For further details refer to SDLTM14110.

Otherwise, in determining the chargeable consideration ‘rent’ cannot include any consideration payable in respect of a period before the lease is granted (FA03/SCH5/PARA1A). In practice, a landlord cannot recover rent for the pre-grant period without specific agreement. Whether consideration is chargeable as rent therefore depends on whether:

* the landlord is entitled to it under the terms of the lease
* it refers to the pre-grant period and
* it refers to the new lease or to a previous agreement or notional lease.

Note that amounts payable in respect of a pre-grant period which refer to the new lease but are not chargeable to SDLT as rent are still chargeable consideration and may be taxable as a premium.

Applying the above tests to the cases a) to c) above:

1. If the landlord is not entitled to the consideration relating to the pre-grant period, there will be no charge to SDLT in respect of the rent for this period. Refer to Example 1 at [SDLTM17115](https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm17115). If there is a right to receive consideration, this cannot be rent so will be taxed as a premium for the grant of the new lease.
2. Where the tenant occupies the property prior to the date of grant and consideration is payable, this will normally be treated as rent payable under a notional lease on substantial performance of an agreement for lease. Refer to [SDLTM17010](https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm17010) for details of the tax treatment on grant of a subsequent lease.
3. For renewal leases to which FA06 does not apply (granted before 19 July 2006 or renewing stamp duty leases), it is a question of fact whether any ‘rent’ payable for the pre-grant period relates to the old or new lease and is taxable as rent or as a premium (refer to Example 2 at [SDLTM17120](https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm17120)):

1. If the rent is the same as under the terms of the previous lease, it will relate to the old lease and will either be outside the charge to SDLT (if the old lease was granted before 1 December 2003) or taxable as rent in respect of the (old) growing lease.
2. If the rent has increased from that payable under the old lease, its tax treatment will depend on the reason for the increase. Where the increase was agreed in order to obtain the grant of the new lease, the increase itself is taxed as a premium in consideration of the new lease and the remainder of the rent payable for the holding over period will be treated as in 1 above. In the absence of such an agreement, the increase will be assumed to refer to the old lease and will be a variation treated as the grant of a lease in respect of the increased rent under FA03/SCH17A/PARA13 (refer to [SDLTM15010](https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm15010)).