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HMRC internal manual

Stamp Duty Land Tax Manual

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

Example 1

A lease is granted on 1 July 2015 of a retail unit in a shopping centre, for a term of 5 years from 1 January 2015 at a rent of £45,000 per annum. The lease has not been substantially performed in advance of completion.

No rent is recoverable in respect of the pre-grant period (the earlier start date is merely to bring the lease term in line with other units owned by the same landlord). For the purposes of the net present value (NPV) calculation, the ‘rent’ for the period from 1 January 2015 to 30 June 2015 is ignored as it is not chargeable as rent.

The rent taken into account for the purpose of the NPV calculation is as follows.

Year 1 (1 July 2015 - 30 June 2016) £45,000
   
Year 2 (1 July 2016 - 30 June 2017) £45,000
Year 3 (1 July 2017 - 30 June 2018) £45,000
Year 4 (1 July 2018 - 30 June 2019) £45,000
Year 5 (1 July 2019 - 31 December 2019) £22,500

The term of the lease is 4 years 184 days from the date of the grant and it has an NPV of £184,232. 

Example 2

A business lease is being held over pending negotiation of a new lease. The final rent being paid under the ‘old’ lease was £50,000 per annum, which is also being paid during the period of holding over. The expiry of the express term of the ‘old’ lease was 31 December 2014.

The new lease is granted on 1 July 2016 at a rent of £70,000 from 1 January 2015. Depending on the facts, the tax treatment is as follows

  1. ‘old’ lease granted under stamp duty; increase in rent in holding over period is not for grant of new lease:
  • the £50,000 rent paid during holding over is ignored (refers to old lease so outside scope of SDLT)
  • the £20,000 increase is treated as the grant of a new lease for 18 months at £20,000 per year (but only if the old lease was granted after 1 January 2000) as the original stamp duty lease has been varied.
  1. ‘old’ lease granted under stamp duty; increase in rent in holding over period is for grant of new lease:
  • the £50,000 rent paid during holding over is ignored
  • the £20,000 per annum increase for 18 months is treated as premium for the new lease, that is, £30,000 is taxed as premium
  1. ‘old’ lease granted under SDLT:
  • SDLT payable on NPV of £70,000 rent from backdated start date with overlap relief available for SDLT paid on NPV of growing lease. Note that under paragraph 3(3), Schedule 17A, Finance Act 2003, a return must be submitted within 30 days of the end of each year of holding over