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These uncertain economic times have prompted many businesses to consider the terms of their property leases. However, amendments to leases often have Stamp Duty Land Tax implications, as our specialist Fiona Phillips considers.
Stamp Duty Land Tax (SDLT) is charged on consideration paid for an acquisition of land and property. As it may not seem obvious that a change to a lease has given rise to a further acquisition of an interest in land, specialist SDLT advice should be taken. The need to make an SDLT return may also arise even if the transaction is within the nil tax rate band, as transactions with consideration over £40,000 require an SDLT return.
A simple deferral of rent, which does not otherwise alter the terms of the lease – and so the tenant does not acquire any further interest in the property – will not give rise to an SDLT charge.
A tenant negotiating a rent reduction, which is not an uncommon scenario in the current climate, would be treated as gaining a further acquisition of an interest in the land and property – but unless consideration of money or money’s worth is given, no SDLT arises. However, something given in exchange – for example, the tenant agrees to carry out work on the property for the landlord – will be treated as chargeable consideration, which could give rise to an SDLT charge if the value of the work is over the threshold.
Tenants might well be negotiating a rent reduction in the short term, but with a higher rent payable in future years, when trading has improved. If this is outside of the terms of the agreed lease, and takes place within the first five years of the lease, an SDLT charge may arise. If overall the rent payable has increased, the variation is treated as the grant of a new lease, and any increase in rent is the consideration for SDLT purposes.
Tenants often enter into leases with rent based on the turnover of the business. As the rent is therefore uncertain at the grant of the lease, the SDLT is due on the reasonable estimate of the rent in the first five years. If, due to the economic downturn, a lower rent is paid than was envisaged at the outset, then SDLT has been overpaid. At the end of year five a claim for repayment can be made to HMRC.
A tenant may be negotiating to increase the term (or demise) of a lease. This is treated in law as a surrender of the old lease and a regrant of a new one, meaning SDLT is due on the new lease. However, SDLT already paid on the old lease can be offset against the further SDLT for any period in which there is an overlap of the two leases.
The landlord’s position
SDLT would be due by the landlord should they make a payment to the tenant to acquire the property – for example by paying the tenant to surrender or otherwise vary the lease.
SDLT is a complex area and we would always recommend seeking professional advice. To discuss the issues arising in your particular circumstances, talk to our friendly team today by calling 01482 325 242 or by emailing firstname.lastname@example.org