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SDLT on commercial leases can be very complex. Many tenants are unaware that Stamp Duty Land tax is payable on commercial leases – and may be hit with a penalty, as well as the full amount owed with interest, if they fail to pay the tax on time.
Due to the complexity of application of SDLT on commercial leases, there are also many circumstances where tenants mistakenly overpay the tax. If this is the case, it is possible to reclaim overpaid SDLT from HMRC, although this process can also be complicated.
If you are negotiating a commercial lease, seeking legitimate savings on SDLT or are attempting to reclaim overpaid tax, using an experienced Stamp Duty Land Tax barrister is highly recommended.
Patrick Cannon has over 35 years’ experience working as an SDLT lawyer – first as a solicitor and latterly as a barrister. His in-depth knowledge of the intricacies of this field of tax law make him the ideal choice to manage, advise and represent private and corporate clients in all aspects of SDLT on commercial leases. For more information, contact Patrick Cannon here.
If you are a tenant of a commercial property, it is your responsibility to calculate and pay SDLT on the lease on time. Landlords bear no responsibility for SDLT on the lease.
For commercial tenants, SDLT may be payable on any of the following elements of your commercial lease:
SDLT is not payable on all commercial leases, however – and for this reason, it is highly recommended that you instruct a specialist tax lawyer or accountant to review your liability for the tax.
As mentioned, calculating SDLT on a commercial lease is complex, and while it is possible to use an online calculator, the calculators do not allow for all the complexities that may arise and so it is advisable to consult a tax lawyer or accountant who is well versed in handling commercial SDLT.
The SDLT rate is based on any lease premium paid by the tenant and on the rent due under the terms of the lease (including VAT if applicable).
The amount of ‘rent due’ is based on the first 5 years of rent payments. If the lease is longer than 5 years, the ‘rent due’ is based on the highest amount paid over a 12-month period during the first 5 years.
Once the length of the lease is factored in, the Net Present Value (NPV) of the lease can be calculated, and the amount of SDLT owed is based on this figure.
SDLT can also be applied to certain other payments made under the terms of a lease, and also to ‘chargeable considerations’, such as a commercial tenant’s obligations to carry out work or services on a rented property.
SDLT needs to be paid within 14 days of the ‘effective date’ of the transaction. This could be the date of completion of the transaction, the moving-in date, or when the main part (‘substantial performance’) of the transaction has taken place.
Lease extensions may give rise to additional SDLT, however neither the surrender of the old lease or the grant of the new lease are regarded as ‘chargeable consideration’. It is always worth confirming your liability with a tax barrister or solicitor before you commit to a lease extension and to ensure that you are not missing the deadline for SDLT payment.
No – SDLT rates for residential vs Commercial property leases are different and the rates for residential leases can be found here.
SDLT rates for non-residential leases are as follows:
|Property or lease premium or transfer value||SDLT rate|
|Up to £150,000||Zero|
|The next £100,000 (the portion from £150,001 to £250,000)||2%|
|The remaining amount (the portion above £250,000)||5%|
|Net present value of rent||SDLT rate|
|£0 to £150,000||Zero|
|The portion from £150,001 to £5,000,000||1%|
|The portion above £5,000,000||2%|
Yes – you are exempt from paying SDLT if you are granted a commercial property lease of more than seven years, while the premium is under £40,000 with the annual rent of less than £1,000.
There are other exemptions for SDLT on commercial leases, including leasebacks and extensions.
Patrick Cannon is a highly experienced tax barrister and leading expert on SDLT. With his in-depth knowledge of the nuances of this complex area of tax law, Patrick is able to advise on all aspects of commercial lease SDLT, as well as manage all correspondence with HMRC, including claiming refunds for overpaid SDLT and defending clients in HMRC investigations and litigation.
For more information or to instruct Patrick Cannon directly, contact him here.