Stamp Duty Land Tax in relation to the grant of leases

This is calculated by multiplying the length of the lease by the annual known rent (plus vat if applicable) and then applying a ‘temporal discount’. The result is called the Net Present Value (NPV) and the Tenant has to pay Stamp Duty Land Tax at the rate of 1% on the amount by which the NPV exceeds £150,000.

This is payable within 30 days of the 'effective date' - generally speaking this means the date of completion. The best way of calculating the NPV is to use a tool provide by HM Revenue and Customs, see Useful links. For the rent you use the highest known rent in the first 5 years. If there is a rent review during the first 5 years then once that has taken place a further SDLT return is required and any further tax due has to be paid. Rent reviews (other than abnormal ones) after the first 5 years are ignored.

The £150,000 'tax free' allowance mentioned above relates only to the NPV calculated on the grant of leases. It does not apply to any premium charged on the grant of a lease or  the premium paid for the assignment of a lease, transfer of a freehold or any other transaction.

It is necessary to complete a return and submit this to HM Revenue & Customs. The main form is SDLT1 and sometimes a supplementary form SDLT4 see Useful links. You will see that from the same page you can get guidance notes.

An SDLT1 is not required where the term of the lease does not exceed 7 years and there is no tax payable  (ignoring any reliefs that may be available). Bear in mind that the term of any previous SDLT lease is taken into account. If there was a previous SDLT lease then that would be considered as a linked transaction.

If you have any concerns about this you should refer to the HMRC web site see Useful links or telephone their help line on 0845 603 0135.

The above is a very brief summary of the main SDLT requirements in relation to the grant of commercial leases. If you need more information you should check with HM Revenue & Customs. The assignment of leases is dealt with differently - unless the consideration for the assignment is below £40,000 then an SDLT1 will be required (even if there is no tax to pay).

HM Land Registry
If the term of the lease granted exceeds 7 years then the lease needs to be registered at HM Land Registry. This is done using form AP1 which can be downloaded for free from the Land Registry website, see Useful links. There is a fee charged by HM Land Registry which is based on the amount of the rent.

Note also that the Land Registry require evidence of identification for any unrepresented party to any application for registration that is lodged. This is done by completing form ID1. Form ID1 can be downloaded for free from the Land Registry web site. The form is required for each party to the application i.e. in connection with the registration of a lease this would mean both the landlord and the tenant.

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