When dealing with the SDLT due on a lease renewal, one has to consider whether a rent-free period applies, whether stepped rents fall squarely within a year for the purposes of the SDLT calculation, whether VAT needs to be added to the rents, but, in respect of lease renewals, there are far more challenging considerations.
The rules vary depending on the circumstances of your renewal so there are multiple additional questions which a practitioner must ask:
- Did the previous lease fall within the stamp duty or the SDLT regime?
- Did the tenant have security of tenure?
- Is the term of the new lease backdated to expiry of the previous lease?
- Has the tenant held over under the growing lease regime?
- Is the tenant able to claim overlap relief?
Each of these questions will impact upon a tenant’s SDLT liability so it is important for the person tasked with assessing the same to ensure they have all the facts and they follow the rules.
Example
A tenant entered into a lease on 1 January 2005 for a period of ten years. The lease was not contracted-out and the tenant held over on expiry. The tenant entered into a new lease with the landlord on 1 March 2017 for a ten year term commencing on the date of the lease. In this case, for the purposes of assessing the tenant’s SDLT liability, one should initially identify whether the tenant submitted additional returns during the holdover period. Two returns should have been submitted, one for the first year of holding over (2015) and another for the second year of holding over (2016). POROS’ growing lease calculator can assist with these. In respect of the lease renewal, the new term commences in the third year of holding over but a full year has not passed. To reflect this part-year period of holdover, for tax calculation purposes, Year 1 will commence on 1 January 2017 and not 1 March 2017. Where an annual rent of £85k was payable during the holdover period and a rent of £100k is payable from 1 March 2017, this will need to be apportioned.
POROS’ lease renewal calculator is the only calculator on the market that correctly assesses a tenant’s SDLT liability on lease renewals. It prompts the user for information which allows it to determine the rules applicable to the particular transaction. It will then undertake the requisite calculations and assess the SDLT liability, saving the user the need to familiarise themselves with the rules and perform the arithmetic.
Depending on the particular facts of the lease renewal, POROS may ask the following questions:
- Is the previous lease dated on or after 1 December 2003?
- Does the tenant have security of tenure or does the lease term continue after expiry of the fixed term until determined?
- Is the new lease granted within one year of the expiry of the previous lease term?
- Is the term of the new lease backdated to the expiry of the term of the previous lease?
- Is the term start date of the new lease within one year of expiry of the previous lease term?
You may then be required to input the following:
- Whether VAT is payable
- The date of the renewal lease
- The Term Commencement Date of the renewal lease
- The Term Expiry Date of the renewal lease
- The amount of any premium payable for the renewal
- The Annual Rent payable during the holdover period
- The Term Expiry Date of the previous lease