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HMRC internal manual

Stamp Duty Land Tax Manual

HM Revenue & Customs
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Notification: Grant of a lease: Example 5

An agreement or missives for a non-residential lease is/are entered into. The lease will be for 10 years from and including the date of practical completion, at a rent of £200,000 per annum. The tenant substantially performs the agreement by taking possession of the premises on 1 July 2009 which is before practical completion 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.

The tenant pays rent in accordance with the agreement 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).

As the date of actual grant is not known, this notional lease is treated as being for an indefinite term, so is treated as a lease for one year (see SDLTM18718). The net present value of the rent of this one-year lease is £193,236 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 seven years or more,
* 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 has to be notified by 31 July 2009).

When the formal lease is granted, there is a deemed surrender of the notional lease. Overlap relief will be available and will reduce the chargeable consideration for the formal lease. As there is rent which has not been extinguished by overlap relief and the formal lease is for more than 7 years, the formal lease will be notifiable within 30 days of the date of last execution of the formal lease. Note that the formal lease is not linked to the notional lease FA03 Sch 17A (para 19).

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