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HMRC internal manual

Stamp Duty Land Tax Manual

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HM Revenue & Customs
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Notification: Grant of a lease: Example 3

An agreement (or missives) for a non-residential lease is/are entered into on 1 June 2009. The lease will be for 10 years from the date of entry which is to be 1 July 2009. The tenant substantially performs the agreement/missives by taking possession of the premises on 1 July 2009 notwithstanding the fact that the formal lease has not been executed. This is treated for SDLT purposes as the grant of a notional lease of which the effective date is the date the tenant takes possession.

The tenant pays rent in accordance with the agreement/missives at a rate of £200,000 per annum. For stamp duty land tax purposes it is treated as rent payable under a notional lease (see SDLTM18010).

The notional lease is treated as being for a term of 10 years. The net present value of the rent of this ten-year lease is £1,663,321 and so is above the commercial threshold of £150,000.

A notional lease such as this must be notified if it meets the normal notification criteria. As this notional lease:

* is for a term of more than seven years,
* is for a chargeable consideration of more than £40,000 and
* the rent is not less than £1,000 per annum

it must be notified within 30 days of the effective date, in this case the date of substantial performance (by 31 July 2009).

When the formal lease is executed, under FA 2003 Sch 17A para 9 as applied for Scotland by para 19, for SDLT purposes there is a deemed surrender of the notional lease and grant of the formal lease. As the formal lease is for exactly the same period as the notional lease, overlap relief will apply so that there is no chargeable consideration for the grant of the formal lease. There will thus be no requirement to notify the formal lease.

See SDLTM19605 for details of substantial performance of agreements for lease and missives.