SDLTM16011 - Reliefs and Exemptions: Overlap Relief: Rent taken into account

Example 1

SDLT is due on substantial performance of an agreement for lease based on the rents for the first five years, if the rent increases in year six it is ignored in the calculation of the NPV.

If the lease is then granted nine months after substantial performance, what rent has been taken into account for the purposes of paragraph 9 Schedule17A Finance Act 2003 (overlap provisions)? Does it include the increase in year six?

On substantial performance the rent for the first five years was taken into account when calculating the NPV but what about the increase in year six? Although not included in the calculation was it taken into account in determining the rent?

It is accepted that where there has been no change to the terms of the lease (i.e. by variation etc) the increased rent in year six has been ‘taken into account’ on substantial performance, for the purposes of paragraph 9, in relation to the grant of the lease.

Therefore if there are no changes between substantial performance and completion there can be no additional SDLT to pay.

Example 2

Where a tenant occupies floor 1 of the office block under a separate lease to that for floor 2 & 3 and it is proposed the these leases are surrendered and a new single lease covering all three floors is granted, overlap relief will be available on the lease,

In this example if the original lease for floor 1 was a 15 year lease from 01/01/2012 at an annual rent of £350,000 and that for floors 2 & 3 was the same, both are surrendered on 30/06/2015 with a new lease of all 3 floors granted for 20 years at an annual rent of £700,000. The overlap period is 01/07/2015 to 31/12/2026 and as the rent has not increased there is no rent to take into account, the remainder of the term (01/01/2027 to 30/06/2035) the rent of £700,000 will be used to calculate the NPV.