HMRC SDLT: SDLTM11060 – Chargeable Consideration: Tenant’s obligations

Chargeable Consideration: Tenant’s Obligations

This section of the HMRC internal manual discusses the principles and concepts related to chargeable consideration concerning tenant obligations. It provides guidance on how tenant obligations can affect the calculation of chargeable consideration for tax purposes.

• Explains the definition of chargeable consideration in the context of tenant obligations.
• Details how tenant obligations are assessed for tax calculations.
• Provides examples to illustrate the application of these principles.
• Offers guidance on compliance with HMRC regulations.

SDLTM11060 – Chargeable Consideration: Tenant’s Obligations

When a new lease is granted, it’s important to know what counts as chargeable consideration. Chargeable consideration affects how Stamp Duty Land Tax (SDLT) is calculated. Here are the details on what is excluded from chargeable consideration:

Exclusions from Chargeable Consideration

The following items do not count as chargeable consideration under the rules set by FA03/SCH17A/PARA10:

• Tenant Repairs and Maintenance: Any obligation of the tenant to repair, maintain, or insure the property is not chargeable consideration. For instance, if a tenant agrees to fix a leaking roof or maintain the garden, these commitments won’t affect the chargeable amount.
• Service Charges: If a tenant agrees to pay for services, repairs, or insurance managed by the landlord, this payment does not count as chargeable consideration. For example, if a tenant is responsible for contributions toward cleaning common areas, this is excluded from the chargeable consideration.
• Market Rent: Any other obligation undertaken by the tenant that does not influence the market rental value is also excluded. If the tenant agrees to community involvement or property upkeep that doesn’t alter rental rates, it is not chargeable.
• Rent Guarantees: A guarantee by the tenant to ensure payment of rent or to fulfil other lease obligations does not count. For example, if a tenant promises a landlord that they will pay the rent on time or comply with certain terms, it won’t impact the SDLT determination.
• Pecuniary Penalties: Any additional rental payment associated with breaches of lease obligations falls outside chargeable consideration. This means if a tenant pays an extra amount due to not following the lease terms, it’s not chargeable.

Further Exclusions Under Statutory Provisions

The following payments or obligations are also excluded as chargeable consideration according to SI 2006/875:

• Payments for Enfranchisement: If a tenant pays the landlord’s costs related to enfranchisement or extending leases of flats and long-leased houses, these payments do not count. For example, when tenants buy the freehold of their flat and pay for legal fees, that amount is not considered chargeable.
• Other Reasonable Costs: Any payment by a tenant for reasonable costs incurred by the landlord concerning the granting of a lease is excluded. This includes costs associated with extending the lease. If a tenant is asked to pay the landlord’s costs for renewing a lease agreement, this charge does not contribute to the SDLT calculation.
• Agricultural Tenants: If an agricultural tenant is required to give up their Single Farm Payment to the landlord when the lease ends, this obligation is also excluded. For instance, if a tenant needs to transfer their farming subsidies back to the landlord, it does not count as chargeable consideration.

Payments in Discharge of Obligations

Payments made by a tenant to satisfy the above obligations do not count towards chargeable consideration. Here’s how it works:

• Payments Reserved as Rent: Even if such payments area specified as rent in the lease agreement, they are still excluded from chargeable consideration. For instance, if a lease states that the tenant pays a unified sum for rent and for service charges, the portion attributed to the tenant’s repairing obligations must be excluded.
• Just and Reasonable Apportionment: If a single sum covers both rent and service charges, you need to break it down fairly according to what is chargeable and what isn’t. Refer to SDLTM11015 for more on this apportioning process.

Surrendering a Lease

When a lease is surrendered, any payment made to relieve a tenant from the obligations mentioned above is not chargeable consideration. For example, if a tenant pays the landlord to terminate their lease obligations or give up certain responsibilities, this payment does not affect the SDLT calculation.

Understanding Chargeable Consideration in Context

To provide more context, let’s look at a few specific scenarios:

• Example 1: A tenant is granted a new lease for a retail space. They agree to take care of regular repairs, such as fixing broken windows or ensuring regular cleaning, as part of their lease. None of these obligations would count as chargeable consideration when calculating SDLT.
• Example 2: A residential lease includes a service charge for communal gardening. If the tenant has to pay £500 a year for maintenance of shared spaces, that amount is not counted as chargeable consideration for SDLT purposes.
• Example 3: An agricultural tenant is leasing land and has to give back a farming subsidy on lease termination. The payment of that subsidy being turned over to the landlord is also not included in the chargeable consideration.

Understanding these exemptions can help landlords and tenants navigate their obligations and avoid unexpected SDLT charges. The focus is on ensuring that both parties clearly understand which aspects of their lease agreements will impact tax calculations.

It is important for anyone involved in leasing agreements to keep these guidelines in mind. For further details, you can refer to the specified sections, including SDLTM11015, for deeper insights into the rules governing chargeable consideration for tenants.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM11060 – Chargeable Consideration: Tenant’s obligations

View all HMRC SDLT Guidance Pages Here