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HMRC internal manual

Stamp Duty Land Tax Manual

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HM Revenue & Customs
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Miscellaneous provisions: Substantial performance of an agreement for lease or missives

Entering into an agreement for lease does not give rise to a charge to stamp duty land tax unless the agreement is substantially performed before the lease is granted. See SDLTM07850 - SDLTM07950 for what is meant by substantial performance.

The conclusion of missives which are intended to be followed by the grant of a formal lease does not give rise to a charge to SDLT unless the missives are substantially performed before the lease is granted.

Where missives are concluded which are not to be followed by the grant of a lease, the missives of let are treated as the grant of a lease in their own right.

Under FA03/SCH17A/PARA19(3), where an agreement for lease or missives of let are substantially performed in advance of completion, this is treated as the grant of a notional lease. The effective date is the date of substantial performance and the term is from and including that date to the end date specified in the agreement. Where it is not possible to identify the end date of the term (for example a term may be expressed to be a number of years from practical completion but no certificate of practical completion has been issued) the notional lease is treated as being for an indefinite term (see SDLTM18718). A land transaction return may be required in respect of the notional lease together with payment of any tax due within 30 days of the effective date (see SDLTM00310).

When a lease pursuant to the agreement or missives is granted, the transaction is regarded as the surrender of the notional lease and a re-grant. Relief is available in respect of the rent payable in the overlap period (FA03/SCH17A/PARA9; see SDLTM19305).

The surrender of the notional lease does not count as chargeable consideration for the re-grant and vice-versa (see SDLTM18060).

A further land transaction return may be required in respect of the grant of the lease, within 30 days of it being granted. If the effect of applying the relief in respect of the overlap period is to reduce the taxable rent under the lease to nil, no land transaction return is required. If the lease requires registration the Keeper will normally require production of the SDLT certificate issued in relation to the substantial performance of the missives or agreement for lease.

From 19 July 2006, the agreement for lease or missives and the lease executed pursuant to it/them are not within the successive linked leases provisions of FA03/SCH17A/PARA5. (FA06/SCH25/PARA4). Linking under FA03/SCH5 still needs to be considered in these cases, as outlined at SDLTM19635.

In cases where a premium is payable, the premium is only subject to tax once. It is a question of fact whether the premium was paid as consideration for entering into the agreement or as consideration for the lease being granted. The purchaser must report the transaction accordingly.

In the event that the transaction envisaged in the agreement for lease or missives is rescinded, annulled or not carried into effect, the tax paid on the agreement may be reclaimed by making an amendment to the land transaction return in respect of the agreement.