|
Date: 24 March 2010
STAMP DUTY LAND TAX ON LEASE – TIME BOMB
THREE ISSUES
Firstly, have you taken a lease for five years since December 2003? Did the lease provide for payment of a rent dependent upon business profit or some other means of calculation? If so then there is a risk that further SDLT is payable and if not paid on time then penalties might be incurred.
In the case of uncertain rents, for instance dependent upon turnover, SDLT should have been paid at the time of the grant of the lease based upon a reasonable estimate of the likely rent for up to the first five years.
It is important then to bear in mind that upon the earlier of the date when the rent is actually ascertained or the date of the fifth anniversary of the original SDLT calculation, SDLT needs to be recalculated and the SDLT rates then applied are those that were current at time of the original grant of the lease.
If the resultant calculation requires additional SDLT to be paid then this is due within 30 days of the fifth anniversary plus interest from the date of the grant of the lease. Alternately there may be a refund due to the tenant if SDLT was overpaid.
If this responsibility is overlooked and payment not made within that 30 days of the due date, penalties will be due to HMRC.
It should be borne in mind that if the rent for the fifth year is not known for instance until the end of the sixth year due to the need to carry out a retrospective turnover rent calculation, then the tenant must make its calculation of SDLT payable at the end of year five using reasonable estimates and then a third calculation be carried out when the figures are actually finalised.
Secondly, HMRC are alert to circumstances where there has been an abnormal rent increase during the 5 year term, and are seeking to guard against circumstances where the tenant might have agreed a lower rent in the first 5 years of the term so as to save stamp duty land tax with exceptional hike at the 5 year rent review point.
It should be borne in mind that where there is any abnormal increase rent after the end of the fifth year (whether by way of rent review variation or under the terms of the lease itself) Revenue and Customs may seek to treat this as the grant of a new lease for SDLT purposes and a top up payment of SDLT may be necessary. Generally speaking anything over 20% increase year on year is considered abnormal.
Again the thirty day rule applies with penalties applicable.
HMRC have a useful “abnormal rent increase calculator” should you have any doubt as to the position.
Finally, if you as tenant have taken on lease since the implementation of SDLT, and upon the expiry of that lease it has been continued pursuant to Section 24 of the Landlord and Tenant Act 1954, then properly the additional period of holding over should be added to the original lease term and additional SDLT paid.
For instance if a 5 year term was granted in January 04 and upon expiry of the term the tenancy continued under the Landlord and Tenant Act, then the day after such expiration of the contractual term it would be assumed to be for at least a further year for SDLT purposes, and therefore the lease would be viewed as a 6 year lease rather than one for 5 year and SDLT would need to be recalculated at the rates applicable at the initial grant of the lease and any balance paid.
The problem is again the 30 day rule, i.e. if the process is not dealt with within 30 days of the start of the holding over period then not only may further SDLT be due but interest and also penalties for late filing.
One might be justified in thinking that if a new lease was concluded, backdating the term to the end of the old lease and SDLT paid on the new lease accordingly, then HMRC were no worse off and it all turned out right in the end. Not so I am afraid. Properly the procedure should have been:
It is obviously critical for a tenant and its advisers to be alert to these additional potential trigger points and liabilities arising.
If you suspect that your lease may be affected by any of these scenarios, please contact the Buller Jeffries’ Commercial Real Estate team for further advice.
|
