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Do You Pay Stamp Duty on a Commercial Lease?
SDLT on commercial leases can be very complex. Many tenants are unaware that Stamp Duty Land tax is payable on commercial leases – and may be hit with a penalty, as well as the full amount owed with interest if they fail to pay the tax on time.
Due to the complexity of the application of SDLT on commercial leases, there are also many circumstances where tenants mistakenly overpay the tax. If this is the case, it is possible to reclaim overpaid SDLT from HMRC, although this process can also be complicated.
If you are negotiating a commercial lease, seeking legitimate savings on SDLT or are attempting to reclaim overpaid tax, using an experienced Stamp Duty Land Tax barrister is highly recommended.
Patrick Cannon has over 35 years of experience working as an SDLT lawyer – first as a solicitor and latterly as a barrister. His in-depth knowledge of the intricacies of this field of tax law makes him the ideal choice to manage, advise and represent private and corporate clients in all aspects of SDLT on commercial leases. For more information, contact Patrick Cannon here .
Do I have to pay stamp duty on a commercial lease?
If you are a tenant of a commercial property, it is your responsibility to calculate and pay SDLT on the lease on time. Landlords bear no responsibility for SDLT on the lease.
For commercial tenants, SDLT may be payable on any of the following elements of your commercial lease: • Grant • Assignment • Variation • Surrender
SDLT is not payable on all commercial leases, however – and for this reason, it is highly recommended that you instruct a specialist tax lawyer or accountant to review your liability for the tax.
How to calculate stamp duty on a commercial lease?
As mentioned, calculating Stamp Duty on a commercial lease is complex, and while it is possible to use an online calculator, the calculators do not allow for all the complexities that may arise and so it is advisable to consult a tax lawyer or accountant who is well versed in handling commercial SDLT.
The SDLT rate is based on any lease premium paid by the tenant and on the rent due under the terms of the lease (including VAT if applicable).
The amount of ‘rent due’ is based on the first 5 years of rent payments. If the lease is longer than 5 years, the ‘rent due’ is based on the highest amount paid over a 12-month period during the first 5 years.
Once the length of the lease is factored in, the Net Present Value (NPV) of the lease can be calculated, and the amount of SDLT owed is based on this figure.
SDLT can also be applied to certain other payments made under the terms of a lease, and also to ‘chargeable considerations’, such as a commercial tenant’s obligations to carry out work or services on a rented property.
When Does Stamp Duty Land Tax Need To Be Paid?
SDLT needs to be paid within 14 days of the ‘effective date’ of the transaction. This could be the date of completion of the transaction, the moving-in date, or when the main part (‘substantial performance’) of the transaction has taken place.
Frequently Asked Questions
Do you have to pay stamp duty on a commercial lease extension.
Lease extensions may give rise to additional SDLT, however, neither the surrender of the old lease nor the grant of the new lease are regarded as ‘chargeable consideration’. It is always worth confirming your liability with a tax barrister or solicitor before you commit to a lease extension and to ensure that you are not missing the deadline for SDLT payment.
Is Stamp Duty the Same for leases on Residential, Mixed and Commercial Properties?
No – SDLT rates for residential vs Commercial property leases are different and the rates for residential leases can be found here.
SDLT rates for non-residential leases are as follows:
Are There Exemptions on Paying SDLT for a Commercial Lease?
Yes – you are exempt from paying SDLT if you are granted a commercial property lease of more than seven years, while the premium is under £40,000 with the annual rent of less than £1,000. There are other exemptions for SDLT on commercial leases, including leasebacks and extensions.
How Patrick Cannon Can Help?
Patrick Cannon is a highly experienced tax barrister and leading expert on SDLT . With his in-depth knowledge of the nuances of this complex area of tax law, Patrick is able to advise on all aspects of commercial lease SDLT, as well as manage all correspondence with HMRC, including claiming refunds for overpaid SDLT and defending clients in HMRC investigations and litigation.
For more information or to instruct Patrick Cannon directly, contact him here .
Last Updated: 18th January 2023
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Stamp Duty Land Tax (SDLT) is sometimes payable by tenants on leases. The SDLT payable is determined by the value of the lease, which is calculated based on any premium paid, the rent payable and the length of the lease. SDLT is more likely to be payable with medium to longer term leases or when the rents are higher.
The SDLT becomes payable on the ‘effective date’ of the lease. This is usually the date of completion of the lease, though this date can sometimes vary if there has been ‘substantial performance’ before completion. The current filing deadline is 14 days from the effective date of the transaction. If SDLT is payable then an SDLT form will need to be lodged with HMRC within the relevant time frames along with any payment due.
Please note that whether or not SDLT is payable on your lease transaction, an SDLT form will still need to be filed with HMRC if the lease is for a term of seven years or longer.
Should you have any concerns regarding SDLT issues please do not hesitate to contact our commercial property solicitors on 01616 966 229 or complete our online enquiry form and we will contact you directly.
There are a number of circumstances during the term of your lease when SDLT may again become payable. It is imperative that you are aware of these circumstances as HMRC are becoming more and more aggressive in their pursuit of individuals and companies who have avoided, forgotten or simply not been aware that an SDLT payment has become due. You could be liable to fines and interest payments if you fail to correctly pay SDLT when due. The Inland Revenue have the ability to query for many years after they were due, and this gives them a large amount of leeway to chase missed SDLT payments.
Below are a number of circumstances which may arise during, or at the end of your current lease, and which may give rise to an SDLT liability. Should you require any advice in respect of the same either now, or at any stage in the future, please do not hesitate to contact us closer for further advice. Please note that the responsibility for SDLT payments is your own and not knowing the rules will not be a valid excuse for HMRC.
Common SDLT requirements under leases
Rent review.
The SDLT payable on a lease is calculated by reference to the first five years’ rent. Therefore, if you have a rent review within the first five years and the new rent amount was not known at the outset (for example where rents are to be reviewed in line with market rents or business results as at a future date, or index-linked) then an additional return may need to be filed once the revised rent is determined. A further payment of SDLT may also be due at that stage.
Accordingly it is advisable to seek advice prior to or on the determination of any rent review, to ascertain the likely SDLT implications and whether any payments are required.
Lease expiry and holding over
If your original lease term expires, but you continue in occupation of the premises, then you are deemed to be ‘holding over’ your lease. Once your lease continues after its contractual expiry date then it is treated as if the original term of your Lease has been extended by one year. i.e. a five year lease will be treated as a six year lease. If SDLT was paid at the start of your lease (or if the extra year takes the lease over the SDLT threshold), then at this stage a further SDLT payment will be required and will need to be filed with HMRC. For each subsequent year that the lease is ‘held over’ another SDLT form needs to be filed. This is known as the growing lease regime. Failure to file further returns within the relevant short timescales could could result in fines.
Lease renewals
Unless your lease is expressly excluded from the Landlord and Tenant Act 1954, then as a commercial tenant, you are entitled to a new lease (on substantially the same terms) at the expiry of your current lease. Such renewal leases could have SDLT implications.
You should always seek legal advice when taking a renewal lease as you have numerous rights to which you will be entitled. SDLT issues will also apply in this scenario.
Lease extension
If you agree to extend the term or the extent of the land included in your lease, then the extension is treated as a surrender and re-grant, and SDLT may be payable on the value of the re-granted lease.
Breaking a lease
Please note that if you decide to break your lease early, you are not entitled to get any money back from HMRC, despite having paid SDLT for the full lease term.
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Stamp Duty on a Commercial Lease (A Guide!)
- 18 March 2024
IN THIS ARTICLE
Stamp Duty Land Tax (SDLT) must be paid on land transactions in England, including commercial leases over a certain threshold. SDLT may be payable on the grant, assignment, variation or surrender of a commercial lease.
The rules surrounding SDLT are complex and it is the tenant’s responsibility to calculate and pay any stamp duty on a commercial lease that is due to HMRC.
For commercial leases, SDLT can be charged on the premium (initial payment for the lease) and the rent, with different rules applying to each.
Understanding SDLT is crucial for businesses and landlords engaging in commercial property transactions because it affects the total cost of acquiring, leasing, or transferring property. The amount of SDLT payable depends on several factors, including the purchase price, property type, leasehold terms, and whether any SDLT reliefs or exemptions apply.
Several considerations can impact SDLT liability, including lease premiums, rent NPV, and specific lease terms like rent reviews.
Various SDLT reliefs could apply to reduce liability, such as for certain types of leases or transactions involving charities.
Properly managing SDLT obligations can prevent unexpected costs and penalties, making it a critical consideration for businesses and landlords in the UK commercial property market .
It’s essential to consult with professionals when negotiating lease terms and managing SDLT obligations to ensure compliance and minimise tax liability.
Section A: The Evolution of Stamp Duty
Stamp Duty in the UK has a long and varied history. It was initially introduced in 1694 as a temporary measure to fund war efforts against France.
It originally applied to vellum, parchment, and paper for legal documents or ‘instruments,’ with a physical stamp or seal signifying payment.
The success of the Stamp Acts in raising revenue led to their adoption in other European countries and attempts to introduce them in the American colonies, significantly contributing to the tensions leading to the American War of Independence.
Over the years, the scope of Stamp Duty expanded beyond legal documents to include newspapers, pamphlets, lottery tickets, playing cards, and various goods like hats, gloves, and perfumes. Initially charged as a fixed amount, Stamp Duty became an ad valorem tax (based on the value of the transaction) in 1808 for conveyances of sale, including land and shares.
The administration of stamp taxes has evolved. After several mergers of tax bodies, the Inland Revenue managed them, leading to the current oversight by HM Revenue & Customs (HMRC).
Significant changes in recent history include the replacement of Stamp Duty with Stamp Duty Land Tax (SDLT) for property transfers in 2003, which aimed to modernise the tax to apply to land transactions on a sliding scale.
SDLT requires a tax return to HMRC for all land transfers, with penalties for non-compliance, and is charged on leasehold transactions and freehold purchases. The tax structure and rates have seen adjustments over the years to reflect economic conditions and housing market changes, including various threshold adjustments and the introduction of relief measures for first-time buyers and certain disadvantaged areas.
Despite calls for its abolition and promises of reform, Stamp Duty continues to be a significant source of revenue for the UK government, reflecting the tax’s enduring role in the UK’s fiscal landscape.
Section B: How Stamp Duty is Calculated for Commercial Leases
Stamp Duty Land Tax calculation for commercial leases in the UK involves multiple components and depends on both the lease premium and the net present value (NPV) of the rent payable over the lease term. The process and applicable rates can vary depending on whether the property is considered residential or non-residential.
For new commercial leases, the SDLT calculation considers the premium and the rent’s net present value (NPV), which considers expected rental payments over the lease term at present-day prices. SDLT is not payable on premiums under £150,000 for annual rents less than £1,000, but once thresholds are exceeded, SDLT rates apply on a sliding scale based on the value of the transaction.
Additionally, the lease’s duration significantly impacts SDLT liability because the total rent payable over the life of the lease is considered, potentially attracting SDLT even for long leases with modest rent.
1. Calculation Components
a. Premium: SDLT on the lease premium is calculated similarly to that on the sale of a property. The rates may vary based on the total premium amount.
b. Rent: SDLT on rent is calculated based on the NPV of the rent over the lease term. The NPV is the current worth of all lease payments over the term, discounted back to present value.
2. For Non-Residential Leases
The SDLT on the premium follows a tiered structure. For example, you won’t have to pay SDLT on the premium for annual rents of £1,000 or more if the premium is under the £150,000 threshold.
SDLT on the rent portion is charged if the NPV exceeds certain thresholds. For instance, no SDLT is due on the NPV portion up to £150,000. Beyond this, SDLT rates apply on a sliding scale.
3. SDLT Calculator
For precise calculation, it’s recommended to use the SDLT lease transactions calculator provided by HMRC, as it accommodates various thresholds and rates for different portions of the consideration.
Section C: Current Stamp Duty Rates for Commercial Leases
For commercial leases in the UK, calculating Stamp Duty Land Tax (SDLT) involves considering both the premium paid for the lease and the net present value (NPV) of the rent over the lease term.
SDLT Rates for Non-Residential Leases are as follows:
Premium ◦ No SDLT is due on the premium if the annual rent is less than £1,000 and the premium is under the £150,000 threshold. ◦ The SDLT is calculated based on a percentage of the premium amount for premiums over these thresholds.
Rent (NPV) ◦ For the NPV of rent, no SDLT is payable if the NPV is less than £150,000. ◦ For NPVs between £150,001 and £5,000,000, the rate is 1%. ◦ If the rate is above £5,000,000, it increases to 2%.
SDLT Rates for Freehold Sales and Transfers • For transactions up to £150,000, no SDLT is payable. • For the portion from £150,001 to £250,000, a 2% rate applies. • For amounts above £250,000, a 5% rate is applicable.
An example provided for a freehold commercial property purchase priced at £275,000 shows a tiered calculation resulting in a total SDLT of £3,250, demonstrating how the tax applies progressively based on the transaction value.
It’s important to note that for new non-residential or mixed leasehold transactions, SDLT is calculated separately on the purchase price of the lease (lease premium) and the value of the annual rent (NPV). These amounts are then added together to determine the total SDLT due.
Section D: Stamp Duty Exemptions and Reliefs
Exemptions from Stamp Duty Land Tax (SDLT) on commercial leases include transfers with no payment exchange, properties inherited in wills, transfers due to divorce or dissolution of a civil partnership, freehold properties purchased for less than £40,000, and leases over seven years with premiums under £40,000 and annual rent less than £1,000. Reliefs may apply to first-time buyers, multiple dwellings, and properties bought for charitable purposes.
Always file an SDLT return to claim relief, even if no tax is due .
Section E: Submission and Deadlines
1. how to file & pay stamp duty.
To file and pay Stamp Duty Land Tax (SDLT) for a commercial lease in the UK, you typically need to use the HMRC’s online SDLT return system.
Gather the necessary documents, including transaction details, lease agreement, and proof of payment for the lease premium and rent.
Ensure accuracy in your submission to avoid penalties.
2. Filing & Payment Deadline
SDLT returns must be submitted to HMRC within 14 days of the effective transaction date, which could be the completion date, the date of the first rent payment, or when substantial performance of the transaction occurs. Late submission can result in penalties and interest charges .
For detailed and updated information on calculating SDLT for commercial leases, including any recent changes, visit the official GOV—UK pages on Stamp Duty Land Tax on Leasehold sales and the overview of SDLT .
3. Does Stamp Duty Land Tax only need to be paid at the start of the lease?
You may need to make further SDLT payments during the term of your lease.
Rent review
When the initial SDLT is calculated it is based on the first five years’ rent. If your lease includes a rent review within the first five years and a new rent is agreed you will need to file an additional SDLT payment to cover the revised rent. In some circumstances rent reviews that occur after the first five years may also incur SDLT if it has been deemed an abnormal increase. This situation can occur when rent has been kept artificially low for the initial period in an attempt to reduce SDLT.
Holding over
If a lease expires but the tenant remains in occupation of the premises this is known as ‘holding over’. Any lease that continues after its expiry is treated as if the original lease has extended for a year. If SDLT was paid at the commencement of the lease, or if the lease has been taken over the SDLT threshold with this additional year an SDLT Return and additional payment must be made to HMRC.
Lease renewals
Renewal leases are subject to the same SDLT rules as normal leases.
Breaking a lease
Tenants who are considering breaking their lease should be aware they will not be entitled to receive a SDLT refund from HMRC for the remainder of their lease term.
Section F: Common Mistakes to Avoid
Common mistakes businesses make with Stamp Duty on commercial leases include:
• Miscalculating the net present value (NPV) of the rent. • Not claiming eligible reliefs. • Missing deadlines for filing and payment can lead to penalties.
To avoid these errors, always use the HMRC’s SDLT calculator for accurate calculations, thoroughly review eligibility for reliefs or exemptions, and ensure that all SDLT returns are submitted and payments are made within 14 days of the transaction’s completion.
Stamp Duty on Commercial Leases FAQs
What are the Stamp Duty rates for commercial leases?
Rates vary based on the lease’s premium and the rent’s net present value (NPV). Use the HMRC’s SDLT calculator for specifics.
What are the deadlines?
SDLT returns and payments must be submitted within 14 days of transaction completion.
How do I file?
Filing is done through HMRC’s online portal. Have lease details and payment information ready.
Are there exemptions?
Certain transactions, like transfers with no payment, inheritances, and leases under specific thresholds, may be exempt.
Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law , Tax , Human Resources , Immigration & Employment Law .
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Stamp Duty Land Tax (SDLT) and Lease Extensions
Linz Darlington | January 2024
When you purchase a property you often have to pay Stamp Duty Land Tax, also known as SDLT.
However, the good news is that most people don’t need to pay stamp duty (SDLT) on their lease extension premium. Even if you do have to pay Stamp Duty on your lease extension premium, this would not be paid on the professional fees related to the transaction.
This article explains this in more detail - but please note it is just a summary of Government guidance. It should not be taken as tax advice.
Do you only own one residential property?
If you’re extending the lease on the only property you own (in the world) then you would only need to pay Stamp Duty (SDLT) if the premium is over £250,000. If you are either married to someone who owns more than one property, or a co-owner of your flat does, please read the next section.
The £250,001 threshold is set because a lease extension is considered the same as purchasing a property and Stamp Duty Land Tax is only payable on purchases over £250,000.
In this case you will only pay Stamp Duty on the bit above £250,000.
So, if the lease extension premium is £300,000, you’ll pay Stamp Duty on £50,000. You can get an idea of the rate you would pay here .
As a result, unless you have very high value flat (in somewhere like Belgravia) or you have a very, very short lease then you are unlikely to have to pay SDLT on your lease extension.
Do you own more than one residential property (or are married to or own the property with you does)?
However, the story is little different if you own multiple properties. Even if you only own one property, if you are married to someone or own the flat with a friend who owns more than one property this rule also applies. In this case, you’re likely to have to pay the Stamp Duty if the cost of the lease extension is more than £40,000.
Unless your lease is below 80 years (or you have a very high ground rent) then you're still unlikely to pay SDLT.
The £40,000 threshold is due to the Higher Rate of Stamp Duty , which kicks in at £40,000.
Confusingly, the way this works is that if your lease extension premium is £40,000 or above you will pay Stamp Duty on the whole amount. This means if your lease extension premium is £50,000, you’ll pay Stamp Duty on £50,000 – not £10,000.
Equally, it is worth noting that this payment would apply if you own more than one property, even if the flat you are extending the lease on is your main residence.
Are you looking for help with a lease extension?
Start your lease extension today.
Linz is the CEO and co-founder of Homehold. He’s always looking at how we can improve our service and better support you through the lease extension process. If you have any questions about your lease he’d be delighted to help.
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