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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 5

Example 5 - SDLT lease - renunciation and grant of new lease to increase the rent

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 the lease is renounced and a new lease is granted for a period of 17 years at a rent of £300,000.

SDLT is charged on the new 17 year lease (for period from 1 September 2007 to 31 August 2024) at an annual rent of £300,000.

Although the rent under the new lease is actually £300,000, for the purposes of calculating the NPV, overlap relief (under FA03/SCH17A/PARA9) operates such that the only rent to be taken into account is any excess over the rent under the original lease. This applies over the whole term of the new lease, as the original lease would have expired on the same date as the old lease. (See preceding example for details).

As there will be a rent review (on 1 September 2009) which is within the first 5 years of this new lease, then contingent or unascertainable rent provisions shall apply [see SDLTM18520]. This means that:-

1. a reasonable estimate of the reviewed rent has to be used. It is acceptable to use the passing rent; and
2. a further land transaction return will need to be submitted and (if there is an increase in rent at that review date) further SDLT payable, within 30 days after the earlier to occur of (i) the determination of that review or (ii) 1 September 2012 - ie 5 years after the start of the new lease. (If in fact the reviewed rent has not been determined by 1 September 2011, then a further land transaction return submitted on that date shall be required on the basis of an estimated rent, with a third return due within 30 days of the actual rent being determined.)

The abnormal rent increase provisions may also apply to (i) any subsequent rent review increase in rent or (ii) any other variation in the rent.

(Overlap relief will still apply in relation to any such subsequent SDLT charge related to a rent review or a variation to increase the rent. In each case the original £100,000 rent is included in the assumed base figure from which the increase in rent is calculated.)