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HMRC internal manual

Stamp Duty Land Tax Manual

Notification: Continuation of a lease by tacit relocation: Example 3

A residential lease for a term of three years at an annual rent of £30,000 is executed on 1 December 2005. The residential threshold at 1 December 2005 is £120,000 and the tax rate 1%. The lease is not initially notifiable as the net present value (NPV) of the rent is only £84,049, below the £120,000 threshold, and it is for a term of less than seven years.

The tenant stays in occupation past 30 November 2008 paying the same rent, and the lease continues by tacit relocation.

On 1 December 2008, the lease is treated for stamp duty land tax purposes as having been extended by one year, to a lease for a term of four years from and including 1 December 2005 (see SDLTM18730). The NPV of the extended lease is £110,192 and it is still not notifiable as this is still below the residential threshold.

If the tenant remains in occupation past 30 November 2009, the lease is now treated as being a 5 year lease from 1 December 2005. The NPV of this lease is £135,451. Tax is due on the amount above the residential threshold of £120,000 as it was at 1 December 2005 (1% of £15,451 = £154) and notification of this must be made and tax paid within 30 days of the effective date, in this case the date of notional extension of the lease (so by 31 December 2009).

The fact that the residential threshold went up to £125,000 on 23 March 2006 is ignored, as it is the thresholds in place at the date of grant that are relevant.