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HMRC internal manual

Stamp Duty Land Tax Manual

HM Revenue & Customs
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Term of a lease: Minute of variation to extend the term of a lease: Example 1

Example 1 - SDLT lease - variation to extend the term

A lease runs from 1 September 2004 to 31 August 2024 (20 years) at a rent of £100,000. It is subject to 5 yearly rent reviews, the first of which would be on 1 September 2009. On 1 September 2007, prior to the first rent review, the landlord and tenant execute a minute of variation, to extend the term by 8 years, to 31 August 2032.

This will be treated as the grant of a deemed new 8 year lease, from 1 September 2024 to 31 August 2032, but with an effective date (for the purposes of notification of, and payment of any SDLT in relation to the grant of, such new lease) on 1 September 2007.

SDLT is payable on the basis of the estimated rent under that deemed new lease, being £100,000. The rent payable on 1 September 2024 is unknown. SDLT is therefore calculated on the basis of a reasonable estimate, which could be the current rent of £100,000. (No overlap relief is applicable as the deemed new lease does not cover any period of the original lease.)

Despite the new effective date of 1 September 2007, the rule on rent reviews within the first five years would not apply to any increase in rent at the 1 September 2009 review, because the notional new lease will not have commenced at that time, and it is not chargeable (under the 5 year rule) in relation to the original lease which started on 1 September 2004. (Any such increase in 2009 may still be chargeable under the abnormal rent increase provisions.)

After 1 September 2009 (i.e. after the first five years) the abnormal rent increase provisions may apply to (i) any subsequent rent review increase in rent or (ii) any other variation in the rent.

Where a lease which is currently running is to be extended after its future expiry, entering into missives (but not actually executing the minute of extension) is not treated as the grant of a new lease at that point. This is because the possession which would normally trigger substantial performance is referable to the old lease which is still running and not to the new extension.