Time for tax concept

If you have a lease that’s coming to an end, the chances are you might have to pay some more tax. Now that’s a sobering thought!

As we approach 10 years of the Stamp Duty Land Tax (SDLT) regime, this blog post considers some of the implications of this regime on leases and in particular leases that are coming to an end.

Does it apply to my lease?

Broadly speaking, your lease will be an SDLT lease (if granted after 1 December 2003) or a Stamp Duty lease (if granted before 1 December 2003).

If you have a Stamp Duty lease which is coming to an end, then (in most cases) there are no SDLT implications for you to consider. You will have paid your stamp duty at the time you entered the lease and you’re pretty much “in the clear” now. On the other hand, if you have an SDLT lease which is coming to an end, this is where things can get complicated.

I have an SDLT lease which is about to end – what do I need to know?

You may have to submit a new SDLT return and pay more tax if you have an SDLT lease and ANY of the following applies:

  • You remain in occupation after the end of the term under a statutory right. This is known as ‘holding over’. Your initial lease term is deemed to have ‘grown’ by an additional year, so you need to recalculate the SDLT as if the term had actually been one year longer. If you hold over for two years, you need to recalculate again (based on the initial term plus two years), and so on. If you then go on to complete a renewal lease, further SDLT may be payable on that, but you could be entitled to some credit (‘overlap relief’) on the SDLT that you paid during your holding over period.
  • You remain in occupation after the end of the term without a statutory right (ie. under a periodic tenancy). This periodic tenancy deemed to be a new one-year lease, and you need to consider whether SDLT is payable on this as a standalone lease. If your periodic tenancy extends beyond 12 months, then you need to calculate whether SDLT is payable on a 2 year lease, and so on.
  • You carry out a rent review during the first 5 years of the term.
  • You vary the length of the term.
  • The rent increases ‘abnormally’ after the first 5 years.

SDLT is a notoriously tricky area with numerous pitfalls and complexities. Unlike the ‘good old days’ where you could just pay your tax upfront and be done with it, you are now required by law to keep track of the tax position during the life of your lease. Careful planning and strategic advice from the outset should keep the Revenue off your back!

For more information email blogs@gateleyuk.com.

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This blog is intended only as a synopsis of certain recent developments. If any matter referred to in this blog is sought to be relied upon, further advice should be obtained.