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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 6

Example 6 - SDLT lease - renunciation and grant of new lease to increase the rent and 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. Prior to the first rent review, the tenant renounces the lease and a new lease is granted with a rent of £300,000 and which expires on 31 August 2032.

Overlap relief (FA03/SCH17A/PARA9) applies so that SDLT will be payable on the basis of a new 25 year lease (from 1 September 2007 to 31 August 2032) at a rent of £200,000. Even although the overlap relief does not extend to the period after 31 August 2024 (ie the last 8 years of the term of the extended lease), this does not affect the rents taken into account in determining the NPV of the deemed new lease, as it only looks at the rent to be payable over the first 5 years.

As there will be a rent review (on 1 September 2009) which is within the first 5 years of this new lease, then the contingent or unascertainable rent provisions shall apply [see SDLTM 18520]. 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 require to be submitted and (if there is an increase in rent at that review date) further SDTL 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 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.)