SDLT on Lease Transactions
- SDLT on Lease Transactions
- What is the effect of sale and leasback relief?
- What relief exists under Schedule 6A?
- What is a chain breaking company?
- Does the relief mean that no SDLT is due when a lease is surrendered and a new one is granted?
- How do I calculate SDLT on a lease?
- Are tenancy agreements notifiable or chargeable to Stamp Duty Land Tax?
- How are lease extensions treated under SDLT?
Q. SDLT on Lease Transactions
A. When calculating the tax on rent a slice system is used. This means that any net present value (NPV) in excess of £125,000 for a residential transaction (or £150,000 for a non-residential or mixed transaction) is charged at 1% (as opposed to the whole NPV being charged at 1% once the threshold has been exceeded). A NPV can be calculated using our SDLT lease calculator.
Q. What is the effect of sale and lease back relief?
A. Sale and leaseback or lease and leaseback transactions between the same parties are finance raising for the originator. As these transactions are finance raising, we have introduced a relief so that, subject to the provisions of Section 57A Finance Act 2003, the “second transaction” leaseback to the vendor in the initial transaction does not attract SDLT. However, the purchase (first leg sale or lease) is considered to be a chargeable land transaction as the purchaser obtains the full economic benefit of the purchased land. This means that there is no relief for this first transaction within the arrangement. As sale and leaseback and lease and leaseback transactions between the same parties represent an exchange of interests, the initial transaction is chargeable to SDLT at the market value of the interest being transferred. If the parties are connected, then the transactions are linked. Please see Section 57A Finance Act 2003 (as amended). It is important to do so because there are a number of disqualifying circumstances where the relief cannot apply. Both transactions are notifiable.
Q. What relief exists under Schedule 6A?
A. Section 58A Schedule 6A Finance Act 2003 incorporated relief, in limited circumstances, for the purchase of certain residential accommodation. This includes the acquisition by a house building company or property trader from an individual acquiring a new dwelling, the acquisition by a property trader from personal representatives, the acquisition by a property trader from an individual where a chain of transactions breaks down, and the acquisition by an employer or property trader in the case of relocation of employment. Please note that there are strict rules within Schedule 6A, which must not be breached, in order for the relief to apply.
Q. What is a chain breaking company?
A. A chain-breaking company is a company that majors in the business of buying residential properties in order to enable the owners of that property to sell that property and purchase another following the withdrawal of an earlier prospective purchaser.
Q. Does the relief mean that no SDLT is due when a lease is surrendered and a new one granted?
A. No. SDLT will be due on the grant of the new lease, subject to possible overlap relief where the surrender and regrant is between the same landlord and tenant and the lease being surrendered originated under SDLT. Any consideration given by the landlord (over and above granting the new lease) for the surrender is also chargeable to SDLT.
Q. How do I calculate SDLT on the grant of a lease?
A. There is a lease tax calculation tool on this web site.
Q. Are Tenancy agreements notifiable or chargeable to Stamp Duty Land Tax?
A. A tenancy agreement is a form of a lease. The grant of a lease for a term of 7 years or more is always notifiable unless there is no rent of monetary value and no premium. The grant of a lease or tenancy agreement for less than 7 years (including a yearly, monthly or weekly tenancy) is notifiable only if there is tax to pay, or where there would be tax to pay but for a relief which is being claimed.
Q. How are lease extensions treated under SDLT?
A. Please view our Technical Newsletter (PDF 86K) for further information.
