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HMRC internal manual

Stamp Duty Land Tax Manual

Term of a lease: Surrender of existing lease and grant of new lease to increase the term and/or increase the rent: Example 4

Example 4 - SDLT lease - renunciation and grant of new lease 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 2006 the tenant renounces the lease and a new lease is executed which expires on 31 August 2032. The rent remains at £100,000.

Due to the operation of overlap relief (under FA03/SCH17A/PARA9), there is no chargeable consideration for the grant of the new lease and it is not notifiable - subject to the later comment about the 1 September 2009 rent review date.

Overlap relief covers the period from 1 September 2006 (the date of commencement of the new lease) until 31 August 2024 (which would have been the date of expiry of the original lease, had it not been renounced). As the rent under both leases is the same, this means that the rent for this overlap period ie those first 17 years of the new lease, is taken to be NIL (subject to the later comment about the 1 September 2009 rent review date) - because Paragraph 9 operates to treat the rent payable under the new lease, in respect of any period falling within the overlap period, as reduced by the amount of the rent that would have been payable in respect of that period under the original lease. Consequently, as the NPV for the new lease is calculated on the basis of rent payable over the first 5 years of the new lease, and the rent for that whole period is treated as NIL (again subject to the later comment about the 1 September 2009 rent review date), there is no chargeable consideration for the new lease.

However if the new lease still has a rent review at 1 September 2009, then this will be a review of rent within the first 5 years. Therefore a further land transaction return will require to be submitted and (if there is an increase in rent at that review date) further SDTL payable within 30 days of the earlier to occur of (i) that reviewed rent being determined and (ii) 1 September 2012 i.e. 5 years after the start of the new lease. (If in fact the reviewed rent has not been determined by 1 September 2012, then the further land transaction return submitted on that date shall require to be on the basis of an estimated rent, with a third return due within 30 days of the actual rent being determined.) Overlap relief will still be applied to the reviewed rent so the base figure for determining the increase in rent shall be £100,000 not £nil. For the purposes of the abnormal rent increase and any other provisions, the “base rent” is £100,000, not nil, despite the availability of overlap relief.

Further, as the effective date of the new lease is after 1/12/03, the abnormal rent increase provisions may apply to (i) any subsequent rent review increase in rent or (ii) any other variation in the rent. Again, overlap relief will still operate to include the original rent of £100,000 in any assumed base figure from which the increase is being calculated.