Read the original guidance here:
HMRC SDLT: SDLTM12010 – Notification: Grant of a lease

Notification of Lease Grant to HMRC

When a lease is granted, or when a lease is treated as being granted, it is necessary to inform HM Revenue and Customs (HMRC) using the SDLT1 form. In some cases, you may also need to complete the SDLT4 form. Below are the specific scenarios when you must notify HMRC:

When to Notify HMRC

1. If the lease is granted (or treated as granted) for a term of seven years or more and involves chargeable consideration, you need to notify HMRC unless:
– The total chargeable consideration (other than rent) is less than £40,000, and
– The relevant rent is below £1,000.

2. If the lease is granted for less than seven years, you must notify HMRC if tax is chargeable at a rate of 1% or more based on the premium or rent. This also applies if tax would have been chargeable if relief was not available.

3. You have 30 days to notify HMRC from the effective date of the lease. However, starting from 1 March 2019, this timeframe was reduced to 14 days.

Understanding Effective Date

For more details on what constitutes an effective date, refer to SDLTM07600 to SDLTM07750.

Examples of Lease Notification Requirements

Example 1: Long Residential Lease

– A 99-year residential lease is granted with a premium of £100,000 and an annual rent of £500 starting on 1 July 2015.
– The important points are:
– The lease is for seven years or more.
– The premium exceeds £40,000.

Even though you do not have to pay any tax (as the total consideration is below the residential threshold of £125,000 at the time), you still need to notify HMRC. In this case, you must submit the notice by 31 July 2015.

Example 2: Short Residential Tenancy

– A one-year residential shorthold tenancy is granted with a rent of £600 per month starting on 1 July 2015.
– The key points are:
– The lease term is less than seven years.
– No tax is charged at a rate of 1% or more.

Therefore, this lease is not notifiable.

Example 3: Non-Residential Leases and Notional Leases

– An agreement is made for a non-residential lease with a 10-year term and a rent of £200,000 per year, with substantial performance beginning on 1 July 2015.
– The tenant pays rent as outlined in the lease. This payment can also be referred to as a licence fee before the lease is formally completed.
– For stamp duty land tax (SDLT) purposes, this is treated as rent under a notional lease. Since the actual grant date is unknown, it is treated as a lease for one year.
– The net present value of the first year’s rent amounts to £193,236, which is above the non-residential threshold of £150,000.

Thus, this notional lease must be notified within 30 days of substantial performance, due by 31 July 2015.

Example 4: Another Non-Residential Lease

– In this scenario, an agreement for a non-residential lease is made for 10 years with a rent of £100,000 per year, again starting on 1 July 2015.
– Similar to Example 3, the tenant takes possession of the premises and pays rent as planned.
– Although this lease is a notional lease and is treated like a one-year lease for SDLT purposes, the net present value of the rent is £96,618, which is below the £150,000 threshold.

Therefore, you do not need to notify HMRC because:
– The term is less than seven years.
– No tax is due.

Example 5: Fixed-term Non-Residential Lease

– An agreement for a non-residential lease is established for a period ending on 30 June 2025, with a rent of £100,000 per year.
– The tenant starts to perform the agreement by taking possession on 1 July 2015 and pays rent according to the contract.
– This arrangement is treated as a notional lease, and its duration is ten years.

This lease must be notified because:
– It is for a term of seven years or more.
– It involves chargeable consideration.

You must notify HMRC within 30 days of the effective date, which is the date of substantial performance, meaning the notice is due by 31 July 2015.

Example 6: Peppercorn Residential Lease

– A residential lease of 25 years is granted, with a rent set at one peppercorn per year.
– Despite being more than seven years, since there is no chargeable consideration, you do not need to notify HMRC in this instance. The peppercorn rent does not count as chargeable consideration for stamp duty land tax purposes.

Final Points to Note

– Ensure you understand whether your lease falls into the criteria that necessitate notification.
– Take note of the deadlines for reporting to HMRC; it’s essential to stay compliant with tax regulations.
– If you’re in any doubt, consult the relevant SDLT guidance documents for clarification.