Partner Article

Stamp Duty Land Tax (SDLT)

With Watson Burton LLP Law Firm

SDLT came into effect on 1 December 2003 and following its fifth anniversary on 1 December 2008, the continuing effects of SDLT are being felt.

Unascertained rent

The fact that the fifth anniversary of SDLT has passed is significant because the SDLT liability due on the grant of a lease is based on the rent payable in the first five years. It is not always possible to determine the actual rent payable when the lease is first granted, particularly in the case of turnover rents, so the five years rent for SDLT purposes is based on a reasonable estimate. Therefore tenants must now consider whether rent actually paid over those five years is the same as the original estimate and then recalculate the SDLT liability on actual rent figures. If too much tax was paid at the grant of the lease then a refund can be claimed but if too little tax was paid a further SDLT return must be submitted and the additional SDLT must be paid within 30 days of the fifth anniversary of the lease.

If the rent is not ascertained by the end of the fifth year then the SDLT return must be submitted on an estimated basis and then a further return must be submitted within 30 days of when the rent for the first five years actually becomes known. Should a tenant miss these deadlines, penalties starting at £100 and interest will be incurred.

This is a burden on tenants as they may be required to submit multiple SDLT returns if they have a large leasehold portfolio but records may not have been kept as to when these further returns will be due and solicitors may not have been given notice of when turnover rents were agreed. Also, assignees of leases will have to obtain the necessary information from previous tenants in order to comply with these additional obligations which are likely to prove difficult and time consuming. Therefore it is anticipated many tenants will miss the deadlines.

Rent reviews

As the first SDLT leases reach their fifth year, many tenants will have their first rent review and if the tenant suffers an ‘abnormal’ increase in rent then further SDLT will be payable. An ‘abnormal’ increase is about equivalent to an annual increase of 20% per year since the start of the lease. If additional SDLT is due then it must be paid within 30 days of the fifth anniversary of the lease and thereafter further SDLT returns and payments may have to be made after each five year rent review.

It is common for rent reviews to take many months to be agreed and it cannot be ascertained at the review date whether it is abnormal or not. In this situation the SDLT becomes payable within 30 days of the date the new rent first becomes payable.

If you have any comments or questions about this article or any property matters, please contact Helen Foy of Watson Burton LLP at helen.foy@watsonburton.com.

This was posted in Bdaily's Members' News section by Ruth Mitchell .