It’s five years since Stamp Duty Land Tax (SDLT) was introduced – time, then, for a review, given that a five-year period is significant, says property lawyer Richard Horton.
Richard, a consultant specialising in commercial property at leading regional law firm Furley Page, comments: “Under the old regime stamp duty was paid by the tenant once a lease was granted and that was it. Not so with SDLT. To put it simply, stamp duty was a tax on the document which made the transaction viable.
“SDLT is a tax on the transaction itself - even if there is no written lease - so further liabilities to submit returns and pay any additional SDLT are possible.”
Since December 1, 2003 SDLT is calculated by the Net Present Value (NPV) – the sum total of all the rent payable under the lease after discounting each successive year by a fixed percentage.
Be wary about making variations to a lease, warns Richard. Even if it started before December 1, 2003, it can be deemed a new lease so you could be liable for SDLT.
Variations which can trigger a return include extending the term, increasing the tenant’s expenditure obligations, varying the rent and altering the extent of the property let.
SDLT must be paid within 30 days of a transaction. Richard advises you take note of the following transactions and their ‘effective dates’ (the date on which the transaction is ‘substantially performed’):
* Rent reviews – an anti-avoidance provision obliges a tenant to make a return if the rent is increased by an “abnormal amount” which HMRC’s website suggests is a doubling or more of the previous rent. However, always check if there’s an increase. The effective date is the rent review date or, in the absence of that, the date on which the parties agree to an increase. Note that the anti-avoidance provision applies to all leases even if they have no rent reviews
* Rent reviews before five years – you need to make a return and the 30 days start running when the amount is agreed
* Decrease in the rent – the 30 days start when the reduction is agreed – but you can claim a refund!
* Increase in the period of a lease – means the NPV will change so a return must be made within 30 days of the agreement
* Turnover rents and geared rents – SDLT is calculated on the best guess principle but it’s sometimes overlooked that another return must be filed after the first five years when the actual rents paid have been decided
* Holding over – this is most likely to happen, so it’s inevitably complex! Don’t worry if you have an old stamp duty lease but if it’s been varied since December 1, 2003 or it’s an SDLT lease you need to make a return at the start of each year of the ‘holding over’. SDLT is calculated as if the period of ‘holding over’ formed part of the period granted by the expired lease. If a new lease is negotiated and backdated to after the expiry of the old lease you must make a return for the new lease. But you can reclaim the additional SDLT paid as a result of the ‘hold over’. So remember: if you stay in a premises when your lease expires you may be liable for an SDLT return within 30 days of the day after your lease expired – even though you haven’t decided what you’re going to do!
Agreements for leases – say you reach an agreement with the landlord for a lease; move in and start paying rent. Six months later the formal lease is signed. If you then file your return you will be liable for penalties and interest! The 30 days starts running when the transaction was substantially performed.
Always ask yourself if there’s a need to make an SDLT return if your lease alters or rents change or are reviewed, says Richard. And take advice if you are in doubt!