SDLTM12050 - Notification: Continuation of a lease
Where an SDLT lease continues past its original term as outlined in SDLTM14060 or SDLTM14070, this may become notifiable in the following circumstances:
- Lease not notifiable on grant, but net present value of rents over extended term exceeds the relevant threshold
This applies only to leases which, when granted, were for a term of less than seven years and were not chargeable to Stamp Duty Land Tax (SDLT) because consideration was below the tax threshold set out at FA03/S55. The lease will come within the charge to stamp duty land tax (SDLT) once extended, if the net present value (NPV) of rents over the extended term exceeds the relevant threshold.
- Lease notifiable on grant, but SDLT payable on extension of lease exceeds that payable at the time of grant
This applies where NPV over the extended term increases as at 1. above, but in cases where the original lease was notifiable (because the original term was seven years or more, or was less than seven years but the original consideration exceeded the threshold - refer to SDLTM12010).
Note that a lease is not notifiable on extension merely because its term has ‘grown’ to seven years or more.
Notification
Where a lease becomes notifiable for the first time, notification must be made within 14 days of the end of one year after the end of the fixed term or further period (paragraph 3(3), Schedule 17A, Finance Act 2003). Notification should be made on form SDLT1 and (where appropriate) supplementary forms in the normal way.
Where a lease that has previously been notified continues, and either SDLT becomes payable or additional SDLT becomes payable, notification must be made within 30 days of the end of each year of holding over (paragraph 3ZA, Schedule 17A, Finance Act 2003). This includes where a lease was not notifiable on grant but became notifiable on continuation and was notified within 14 days of the end of one year after the end of the fixed term and then continues for a further period of holding over. Notification should be by way of letter to the Stamp Office, providing the Unique Transaction Reference Number (UTRN) for the original transaction and details of the original and extended lease terms.
Continuing lease treated as granted at time original lease granted
Irrespective of whether the original lease was for a fixed or indefinite term, the extended lease is treated as having been granted at the time of grant (or deemed grant) of the original lease.
NPV calculations should be made on the basis that the extended lease was granted at this time.
Any changes in thresholds, rates or reliefs since the date of grant (or deemed grant) have no effect on the tax due.
If VAT was not chargeable on the rent at the date of grant (or deemed grant), the fact that VAT has since become payable is ignored.
Example 1
A 10-year non-residential lease within the Landlord and Tenant Act 1954 is granted from and including 1 December 2020, with annual rent of £50,000 per year. The net present value (NPV) on which tax is paid for this lease is £415,830. The non-residential threshold for NPV on 1 December 2020 was £150,000 and the tax rate 1%. Stamp duty land tax (SDLT) of £2,658 was paid when notification of the grant was made.
The tenant continues in occupation past 30 November 2030 whilst negotiating new terms with the landlord, and the lease continues beyond the fixed term by operation of law.
For SDLT purposes, the lease is treated as being extended by one year, so is now for a term of 11 years from 1 December 2020. The NPV is £450,077. Irrespective of any interim changes in rates, thresholds or reliefs, additional tax due on this 11-year lease is calculated using the rates, thresholds and reliefs in place at 1 December 2020. The additional tax due is:
£450,077 - £150,000 = £300,077
x 1% = £3,000
less already paid £2,658 = £342.
As more SDLT is due, this notional extended lease must be notified within 30 days of the end of the first year of holding over (that is on or before 31 December 2031) and the additional tax paid (by way of a letter to the Stamp Taxes office).
For further details of the treatment of leases continuing beyond their fixed term, refer to SDLTM14070.
Example 2
A 10-year non-residential tenancy within the Landlord and Tenant Act 1954 is granted from and including 1 December 2020, with annual rent of £50,000 per year. The net present value (NPV) on which tax is paid for this lease is £415,830. The non-residential threshold for NPV as at 1 December 2020 was £150,000 and the tax rate 1%. Stamp duty land tax (SDLT) of £2,658 was paid when notification of the grant was made.
The tenant continues in occupation past 30 November 2030 whilst negotiating new terms with the landlord, and the lease continues beyond the fixed term by operation of law. The lease is treated for SDLT purposes as having been extended for one year. Treatment of this extension is covered in example 1 – refer to SDLTM14070.
The lease continues past 30 November 2031, again by operation of law, as negotiations are still continuing. For SDLT purposes, the lease is again treated as being extended by one year, so is now for a term of 12 years from 1 December 2020. The new NPV is £483,166.
As more SDLT is again due, this notional extended lease must be notified within 30 days of the end of the second year of holding over (that is on or before 31 December 2032) and the additional tax paid.
Irrespective of any interim changes in rates, thresholds or reliefs, additional tax due on this 12-year lease is calculated using the rates, thresholds and reliefs in place at 1 December 2020. The additional tax due is (£483,166 - £150,000 = £333,166 x 1% = £3,331 less already paid of £3,000 = £331 extra due).
Example 3
A residential shorthold tenancy is granted on 1 April 2021 for a term of four years at an annual rent of £95,000. The residential threshold at 1 April 2021 is £500,000 and the tax rate 1%. The lease is not initially notifiable as the net present value (NPV) of the rent is £348,942, below the £500,000 threshold, and it is for a term of less than seven years.
The tenant stays in occupation past 31 March 2025 paying the same rent, and a new statutory periodic tenancy is implied at law.
On 1 April 2025, the lease is treated for Stamp Duty Land Tax purposes as having been extended by one year to a lease for a term of five years from and including 1 April 2021 (refer to SDLTM14070). The NPV of the extended lease is £428,929and it is still not notifiable as this is still below the residential threshold. Notification is not required at this point in time.
If the tenant remains in occupation past 31 March 2026, the lease is now treated as being a 6 year lease from 1 April 2021. The NPV of this lease is £506,212. Tax is due on the amount above the residential threshold of £500,000 as it was on 1 April 2021 (1% of £6,212 = £62). Notification of this must be made using SDLT1 (and where appropriate) supplementary forms and tax paid within 14 days of the end of the period of holding over, in this case one year from the date of the notional extension of the lease (so by 15 April 2027).
[The fact that the residential threshold reduced to £250,000 on 1 July 2021 and £125,000 on 1 October 2021, before increasing to £250,000 again on 23 September 2022 is ignored, as it is the thresholds in place at the date of grant that are relevant].