Stamp Duty Land Tax
I have completed a lease of an office building for a term of 15 years, with an option to break at ten years. The rent is £180,000 pa, to be reviewed on an upwards only basis on the fifth and tenth anniversaries of the term. No VAT is payable on the rent. How much Stamp Duty Land Tax is payable?
Stamp Duty Land Tax (SDLT) replaced Stamp Duty on 1 December 2003. Unlike Stamp Duty, SDLT is calculated on a percentage of the net present value (NPV) of the lease rents and increases in the rent during the term can trigger liability for the payment of further SDLT.
The SDLT payable on the new lease will be 1% of the NPV of the lease rents (if this exceeds the £150,000 threshold for commercial property) less the £1,500 deduction applied to all commercial properties.
Using the example above, the NPV for the 15 year term will be £2,073,133 and (1% of £2,073,133) - £1,500. SDLT payable will be £17,231.
How can I calculate the NPV?
You can calculate the NPV using the calculator provided by the Inland Revenue at www.hmrc.gov.uk. Alternatively, our staff are trained to calculate the NPV and will be happy to assist you as part of the service provided to you.
Will I have to pay further SDLT on the review dates?
Rent reviews or changes that take place after the first five years of the term such as those in your lease are ignored. Assuming that there are no "abnormal increases" (increases of more than 5% of RPI) in the rent for the duration of the term it will not be necessary to pay any additional SDLT when the rent is reviewed on the anniversary of the fifth and tenth year of the term.
Is there any way that I can reduce the SDLT payable?
Reliefs and exemptions are available. Alternatively, it may be possible to structure the transaction so as to save duty and/or claim relief. In the example above you could reduce the lease term to ten years with an option to extend the lease for a further five years. This would save SDLT of £5,762. SDLT would only be payable on the five year extension if the option to extend is actually exercised.
How is the SDLT paid?
Any SDLT that is payable must be sent to the Inland Revenue, together with a completed Land Transaction Return Form (LTR), within 30 days of the effective date of the transaction. The effective date will usually be the completion date of the lease. We recommend that you take professional advice when completing the LTR. Our staff are trained to complete the LTR on your behalf.
More Information
For more information please email bh@boodlehatfield.com to request a copy of the following flyers:
Stamp Duty: Extension of Disadvantaged Areas Relief
Stamp Duty Land Tax: A new tax
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