As solicitors are the ones tasked with assessing a tenant’s SDLT liability on a lease renewal, the tendency is to focus on solely the renewal and assume that the tenant has filed the necessary returns in any period of holding over. This assumption is more often than not, incorrect.
Where the previous lease was granted under the SDLT regime (as opposed to the former stamp duty regime) and affords the tenant security of tenure, the first question to ask a tenant when instructed on a renewal is when did the previous lease expire? This will establish whether the tenant has held over for more than a year and the tenant can then be asked whether they have submitted a return to cover the additional year of occupation under their previous lease. This is called the growing lease regime. Where this was not done within 30 days of the anniversary of the term expiry (or 14 days where the lease became notifiable for the first time after 1 March 2019), this will give rise to a penalty and potentially interest payments. Occasionally, you may be required to calculate the liability for a part-year of holding over.
Where a tenant with security of tenure holds over on a SDLT lease before vacating, it will be necessary to calculate the additional liability which this additional period has attracted and, where additional tax is due, the tenant is obliged to file a return and make the requisite payment within 30 days of vacating (or 14 days where the lease becomes notifiable for the first time after 1 March 2019).
Example
A granted B a lease in 2010 for a five year term commencing on 1 January 2010 and expiring on 31 December 2014. The lease was not contracted-out. On expiry of the lease B held over before vacating on 30 June 2015. Annual rent of £100k was payable.
B would have submitted a return and paid the requisite SDLT within 30 days of the effective date on the basis of a five year term. The tenant on vacating the property, has enjoyed five and a half years of occupation. The tenant would therefore have needed to submit a return on the basis of a growing lease of a five and a half years less the five years which the tenant had already accounted for.
POROS provides the only growing lease calculator on the market. A quick and easy to use calculator, it takes account of rent-free periods, stepped rents and VAT to accurately assess the SDLT payable by the tenant.
POROS’ Growing Lease calculator will ask you three questions:
- Is the existing lease dated on or after 1 December 2003? Leases dated prior to this date will be taxable under the stamp duty regime (as opposed to the stamp duty land tax regime).
- Does the tenant have security of tenure or does the lease term continue after the expiry of the fixed term until determined? Where a tenant does not have an automatic right to remain in occupation, SDLT is not payable for the holdover period providing the tenant holds over under a tenancy at will.
- Has the tenant vacated or do you require a part year growing lease calculation? Where the tenant has not vacated, POROS will calculate the revised Return on the basis of a full year of holding over. Where a tenant holds over for more than a year, multiple calculations will need to be undertaken with the second Return calculated on the basis a Return was (or will be) submitted for the first year of holding over.
You will then be required to input four things:
- Whether VAT is payable
- The date of the lease
- Its Term Commencement Date
- Its Term End Date