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HMRC internal manual

Stamp Duty Land Tax Manual

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HM Revenue & Customs
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Term of a lease: Minute of variation to extend the term of a lease: Example 2

Example 2 - Stamp duty lease - variation to extend the term

A lease runs from 1 September 2001 to 31 August 2023. On 1 September 2004 the landlord and tenant execute a minute of variation to extend the lease with effect from 1 September 2023 for a further eight years. It is subject to 5 yearly rent reviews, the first of which would be on 1 September 2006.

SDLT is payable in respect of the rent of £100,000 for the additional 8 year period from 1 September 2023 to 31 August 2031, as this is treated as the grant of a new lease for that period.

Although this new lease does not actually commence until 1 September 2023, the effective date is the date upon which the parties execute the relevant minute of variation (i.e. 1 September 2004). At that time the rent payable on 1 September 2023 is unknown. SDLT is therefore calculated on the basis of a reasonable estimate, which could be the current rent of £100,000.

The rule charging rent reviews in the first five years of the term would not apply to charge SDLT on the 1 September 2006 review because that is a review under a lease whose effective date was before 1/12/03. The notional new lease for SDLT purposes does not commence until 2023, even though (for the purposes of making the SDLT return triggered by the extension) the effective date for the notional new lease was the date upon which the minute of variation was executed.

On 1 September 2026 there will be a rent review. Assuming that the SDLT regime is by then unchanged, if either such review results in an abnormal increase in the rent, (for the 2026 review) above the £100,000 level [or (for the 2028 review) on the difference between the new rent and the rent previously taxed, then the tenant at that time would require to submit a further land transaction return and pay the additional SDLT. (Although the original lease was a stamp duty regime lease, once the extension period has commenced, the lease (for that extension period - as regards variations) is treated as an SDLT lease.)

After 1 September 2023 has passed the new lease will be subject to the SDLT regime including the abnormal rent increase provisions.

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.