SDLTM16010 - Reliefs and Exemptions: Overlap relief

Under FA03/SCH17A/PARA9, relief from stamp duty land tax (SDLT) is available where:

  • a lease(s) (or notional lease(s)) is replaced or followed by another
  • of (substantially) the same premises, and
  • the respective lease periods (or notional periods for SDLT) overlap so that rent for the overlap period would otherwise be subject to a double charge to SDLT.

Examples of such circumstances include where:

  • a lease is surrendered (or treated as surrendered) and, as consideration for the surrender, a new lease is granted for the same or substantially the same premises
  • a tenant under a lease to which Part 2 of the Landlord and Tenant Act 1954 or the Business Tenancies (Northern Ireland) Order 1996 applies requests a new tenancy which is duly executed.
  • a lease of a building which is varied, for example, where additional floors are added to a building held on the old lease such that the variation gives rise to a surrender and re-grant of the lease.

For the purposes of calculating the net present value (NPV) of rents under the new lease, any rent payable under the new lease for any period falling within the overlap period is reduced by the rent which would have been payable (and has been taken into account for SDLT purposes) for the overlap period.

The overlap period is the period common to the terms of both the new and old lease. It is the period from the date that the new lease is granted to the date that the old lease would have ended (for SDLT purposes) had it not been terminated. This includes extensions to lease terms underFA03/SCH17A/PARA3 and FA03/SCH17A/PARA4 (refer to SDLTM14060 and SDLTM14070).

The rent which would have been payable under the old lease is that which was taken into account in calculating NPV for the SDLT charge on the acquisition of the old lease. Refer to SDLTM13080.

Further guidance on “rent taken into account” on completion following substantial performance can be found at SDLTM16011. Overlap relief cannot reduce the rent payable under the new lease to a negative amount. In other words, the amount of rent to be used in the NPV calculation for any year cannot be less than nil.

Note that:

  • Overlap relief is only available where the old lease was subject to SDLT. Where the old lease was subject to stamp duty, all rent payable under the new lease should be included in the NPV calculation for the new lease, irrespective of any overlap period, because no rent has been taken into account for SDLT purposes.
  • No overlap relief is available where a lease on which an SDLT exemption has been claimed is subsequently surrendered and replaced by a new lease which does not meet the conditions for relief. No rent was taken into account in determining the amount of tax due on the first lease so there can be no entitlement to this relief.
  • Where the rent is variable and the provisions at FA03/SCH17A/PARA7 determine the ‘highest rent’ (refer to SDLTM13160), overlap relief is disregarded for the purposes of calculating the NPV of the new lease and the ‘highest rent’ is the rent determined before any reduction for overlap relief.

Relief is available in the same way where a renewal lease is backdated, as follows:

where

  • a lease (‘the old lease’) was chargeable to SDLT and
  • the tenant remains in occupation past the termination date,

then the period of holding over is initially treated as an extension of the original lease by one year and additional SDLT may be due.

If then a new lease is:

  • granted on or after 19 July 2006
  • for (substantially) the same premises as the old lease, and
  • expressed to begin on or immediately after the end date of the old lease (‘backdated’)

then for SDLT purposes:

  • the term of the new lease is treated as beginning on or immediately after the end date of the old lease, and
  • relief is available as outlined above for any rent payable in respect of the period between the termination date and the actual date of grant of the new lease provided that rent has been taken into account in respect of paying SDLT in the holdover period. Refer to SDLTM14110.

N.B. It is possible for more than one lease to be surrendered in consideration of the grant of a single lease.

Example

A lease is granted in respect of floors 1 - 3 of an office block and SDLT paid

If this lease is surrendered and a new lease is granted for floors 1 -6 overlap relief will be available as all of the property originally demised is included in the new lease, this is irrespective of any percentage/proportion that the original demise bears to the new.

RPI rent increases are ignored for SDLT purposes (para 7(5) Sch 17A FA 2003). Therefore if the rent on the new lease is set at a level which reflects the rent paid on the original lease. but adjusted upwards for RPI, full relief will be due for the overlap period.

There are further examples of overlap at SDLTM16015 to SDLTM16035.