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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 4

An agreement or missives for a non-residential lease is/are entered into on 1 May 2009. The lease will be for 10 years from the date of practical completion of certain works to the premises by the landlord at a rent of £200,000 per annum with a rent free period of three months at the beginning of the lease. Practical completion is achieved on 15 June 2009 but the tenant does not take entry immediately, but the formal lease is not executed for some months., The tenant substantially performs the agreement by taking possession of the premises on 31 July 2009 and 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 and the term of which runs from 15 June 2009 to 14 June 2019. (Note that the term of the lease commenced on 15 June 2009, but in the absence of execution of the formal lease the 30 day notification period commences on 31 July 2009).

The notional lease is for the period from 15 June 2009 to 14 June 2019 with a rent of £200,000 per annum and a rent free period from 15 June 2009 to 31 October 2009. The effective date of the notional lease is 31 July 2009.

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 chargeable consideration in excess of £40,000 and
* the rent is not less than £1,000

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

When the formal lease is granted, there is a deemed surrender of the notional lease. The term of the formal lease is from 15 June 2009 to 14 June 2019. Overlap relief will be available and will reduce the chargeable consideration for the formal lease to £nil because of the rent free period. As there is no consideration, the formal lease does not need to be notified. The formal lease can in practice be registered using the SDLT 5 issued in respect of the notification of the notional lease.

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