There are numerous types of SDLT reliefs available, most of which involve complex rules as to whether they apply to a transaction and contain stringent anti-avoidance provisions.
Overlap relief is available where a tenant has entered into an SDLT lease (a lease which was subject to SDLT as opposed to the former Stamp Duty regime) and then enters into a new lease, of the same or substantially the same property, and the respective terms overlap. Rather than incur an additional SDLT liability for the period of overlap, the tenant may deduct the rents previously accounted for for the purposes of the SDLT calculation under the previous lease during that period from the rents payable under their new lease.
Example
A tenant enters into a lease on 1 January 2010 for a ten year term commencing on 1 January 2010 with an annual rent of £80,000. On 1 January 2018, the tenant agrees a new lease with its landlord and enters into a new ten year term commencing on 1 January 2018 for an increased rent of £100,000. When calculating its SDLT liability for the new lease, the tenant will be able to benefit from overlap relief as it already accounted for SDLT on the final two years of its original lease. The Year 1 and Year 2 rents will therefore be £20,000 for the purposes of its new SDLT calculation (£100,000-£80,000). On the above facts, the tenant will benefit from a saving of £1,520 (just over a fifth of its total SDLT liability).
The example above can again be complicated by needing to factor in rent-free periods, VAT (at both the rates applicable at the date of the previous and new leases), stepped rents and the rule in Bradshaw v Pawley [1980].
You should note that overlap relief is not a relief that can just be applied for; it is something that has to be worked out when assessing the Net Present Value of the new lease Return.
Overlap relief may also be payable where a tenant renews a lease and is required to account for SDLT for a period which overlaps with a period of holding over for which a growing lease return was submitted (please refer to our page on growing leases for more information).
POROS offers the only overlap relief calculator on the market and can deal with the most complex transactions to assess the appropriate chargeable consideration for entry in a Land Transaction Return to HMRC, taking into account a tenant’s entitlement to overlap relief. This is then broken down in a clear, easy to understand table which can be printed and stored on the user’s file should they ever need to evidence how they came to assess the tenant’s liability. POROS’ lease renewal calculator will prompt when a tenant may be eligible for overlap relief.
POROS’ Overlap Relief calculator will require you to input four things (for both the old and new lease):
- The date of the lease
- Its Term Commencement Date
- Its Term Expiry Date
- Whether VAT is payable (note the calculator will automatically apply the VAT rate as per the date of the lease entered if VAT is marked as payable)