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HMRC internal manual

Stamp Duty Land Tax Manual

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HM Revenue & Customs
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Calculation of stamp duty land tax: Rent: Abnormal rent increases: Calculation: Example

A ten-year residential lease is granted on 1 April 2004 for rent of £10,000 per year, with a rent review at 1 April 2010. On review, the rent is increased to £25,000 per year from 1 April 2010. As outlined in SDLTM13255, the increase is abnormal so is treated as the grant of a new lease:

* made on the date on which the increased rent first became payable (1 April 2010)
* for consideration equal to the rent increase (£25,000 - £10,000 = £15,000 per year),
* for a term equal to the unexpired part of the original lease (1 April 2010 to 31 March 2014 = 4 years) and
* as linked with the grant of the original lease (for the purposes of applying stamp duty land tax rates and thresholds).

1. When the original lease was granted, the rent review provision was ignored and tax was calculated on the net present value (NPV) of £83,165, deducting the 0% threshold as at 1 April 2004 (£60,000) to give £23,165 taxed at 1% = £231.
2. Calculate the NPV of the notional lease re: the abnormal increase (£15,000 per year over the notional term of 4 years): £55,096. In isolation this would fall below the 0% threshold, but it is treated as linked with, so must be aggregated with, the original lease for the purposes of applying the relevant threshold.
3. Total NPV (TNPV) £83,165 + £55,096 = £138,261. Deduct the 0% threshold applying to residential leases at 1 April 2010 (say £125,000) to give £13,261 @ 1%= total increased tax due of £132.61
4. Proportion of tax applicable to notional
  new lease = £132.61 x 55,096 = £52.84
       
    138,261  

This is returned on form SDLT1 and shown as linked with the original lease.

1. The proportion of tax applicable to the original lease must then be calculated using the rates and thresholds applying at 1 April 2004:

TNPV £138,261 - 0% threshold applying at 1 April 2004 (£60,000) gives £78,261 @ 1% = total increased tax due of £782.61

1. Proportion applicable to original lease using formula as before:
  Total tax per 1 April 2004: £782.61 x 83,165 £470.74
       
    138,261  

Under FA03/S81A, a further return is required in respect of the additional tax due for the original lease i.e. £470.74 - £231.65 already paid = £239.09. This is made by way of letter to the Birmingham Stamp Office. (address is available @ HMRC website within the contact us pages) For notification purposes the effective date is that of the later, notional grant (1 April 2010), so the further return must have been made by 1 May 2010.