SDLT update: fifth anniversary of SDLT on 1 December 2008 - additional SDLT charges. 

The festive season may herald a less than welcome surprise for some tenants this year as the fifth anniversary of the introduction of SDLT on 1 December 2008 brings with it the spectre of additional SDLT charges. The earliest SDLT leases are "coming of age", which could trigger an obligation to make additional SDLT returns and pay additional SDLT. HM Revenue & Customs do not intend to issue reminders so tenants must make sure that any necessary SDLT returns are made in good time or pay late submission penalties.

Uncertain rent - additional SDLT return after 5 years

Where a lease has an uncertain rent (for example a turnover rent), the initial calculation of SDLT is based on estimates of the rent for the first five years. At the end of the fifth year, the tenant must re-calculate the SDLT using the actual rental figures and revised estimates for any years where the rent has not yet been determined. Any additional SDLT resulting from this calculation has to be paid within 30 days of the end of the fifth year together with interest, and a further SDLT return has to be made. On the other hand, overpayments of SDLT can be reclaimed. From 1 December 2008 tenants paying turnover rents should ensure that this 5 year deadline is not missed. This includes tenants to whom a lease has been assigned, as the incoming tenant takes over responsibility for the year 5 return.

Abnormal rent increases

Rent reviews due after the first five years of a lease are ignored in the initial calculation of SDLT. After the end of the fifth year, however, any "abnormal" increase in rent (whether by way of rent review, variation or under the terms of the lease itself) is treated as the grant of a new lease for SDLT purposes which means that an SDLT return and top-up payment of tax may be necessary.

The calculation of the abnormal rent increase threshold is complicated, particularly if there have been previous variations to the lease, and HM Revenue & Customs are working on a calculator that will assist tenants. In the meantime, an abnormal increase is roughly equivalent to an increase greater than 20% per annum since the most recent previous increase. This may seem like a substantial increase in view of current market conditions, but it is likely to affect a number of tenants.

Review your leases

It is important to seek advice at the earliest opportunity. A 30 day time limit for notification and payment will operate just as it does for other land transactions, so the first returns and payments arising from the earliest SDLT leases may be due by 31 December 2008. Delay may result in a significant penalty and interest charges (not to mention a lump of coal in your stocking. For further assistance please contact your usual Brodies contact or Isobel d'Inverno.


Isobel d'Inverno

Director of Corporate Tax