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HMRC internal manual

Stamp Duty Land Tax Manual

From
HM Revenue & Customs
Updated
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Calculation of stamp duty land tax: Rent: Variable or uncertain rent: Example 10

A trader is granted a lease for

* a term of ten years from and including 1 January 2004
* a premium of £10,000 payable on the grant of the lease
* rent based on either 5% of turnover or £30,000, whichever is higher.

There are no provisions in the lease for review of the basis on which turnover rent is calculated

On grant

A land transaction return should be filed by 31 January 2004.

As the rent is uncertain because it is based on turnover, the tenant makes a reasonable estimate of the rents payable in respect of the first five years of the lease by virtue of FA03/S51 as follows. The increase is because the business plan shows turnover to increase such that rent estimates of £35,000 would be reasonable after year 3.

Year 1 £30,000
   
Year 2 £30,000
Year 3 £30,000
Year 4 £35,000
Year 5 £35,000

The highest rent payable in respect of any consecutive twelve-month period is calculated as being £35,000.

As there is a minimum rent payment due, this minimum rent is ascertainable for the purposes of calculating the average annual rent. This is £30,000 per year. It follows therefore that the premium is fully taxable at 1% (see SDLTM18410).

The net present value (NPV) of the estimated rent is £277,073. Stamp duty land tax (SDLT) is calculated as:

* £1,270 payable on the rent plus
* £100 on the premium

giving total tax due of £1,370

At the end of five years

Estimates should be reconsidered and a return filed as necessary (by way of letter to Birmingham Stamp Office (address is available @ HMRC website within the contact us pages). At this point, the rent paid in respect of the first four years has been determined but the rent for the fifth year has not.

The agreed rents are:

Year 1 £30,000
   
Year 2 £32,000
Year 3 £30,000
Year 4 £38,000

 

A revised estimate of the rent in in respect of year five is made in the sum of £42,000. The highest rent payable in any consecutive twelve-month period remains £38,000

The NPV of the estimated rent is £314,059. SDLT is calculated as:

* £1,640 payable on the rent plus
* £100 on the premium

giving total tax due of £1,740.

Hence additional tax of £370 is due.

On determination of the estimated rent for fifth year

The rent for the fifth year is determined on 1 June 2009, in the sum of £40,000. The revised NPV is £304,771. SDLT is calculated as:

* £1,547 payable on the rent plus
* £100 on the premium

giving total tax due of £1,647. A refund of £93 may be claimed.

A return does not have to be filed as a refund is due. If a refund is required, this should be claimed by way of amended return by letter to Birmingham Stamp Office.