Tenants with non-residential leases for a term of less than five years regularly overpay SDLT.
HMRC has an online calculator to assist with the assessment of Stamp Duty Land Tax (“SDLT”), a tax which is payable on certain property transactions in England. The rules are often complex with nuances in their application based on the particular facts of a transaction. Whilst SDLT is a self-assessment tax it often falls to solicitors to calculate the tax due and assist their clients with submission of the Returns to HMRC.
An alarming number of solicitors are unaware of the HMRC calculator’s shortcomings with the result that their clients end up overpaying tax. One such shortcoming is the calculator will round up a part-term to the nearest whole year where the term is less than five years. An example is given below.
Alpha Ltd enter into a lease with Bravo Ltd at a rent of £65,000 plus VAT per annum for a term running from 1st January 2018 until the 1st January 2021. This equates to a term of three years and one day. Remarkably, HMRC’s calculator will round this up to four years. As SDLT on leases is calculated by multiplying the term of the lease by the rent (after taking into account inflation on the rent), this will mistakenly inflate the tax due. On these particular facts, HMRC’s calculator will assess SDLT of £1,365, an overpayment of £678 almost double the correct assessment of £687.
Solicitors are therefore strongly advised to use POROS in calculating their clients’ SDLT liability when dealing with a term of less than five years where the final year of the term is not a full year. POROS’ non-residential lease SDLT calculator is able to correctly calculate a tenant’s SDLT.
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