HMRC SDLT: SDLTM12035 – Notification: Grant of a lease: Example 5

Principles and Concepts of Lease Notification

This section of the HMRC internal manual provides guidance on the notification process for the grant of a lease, using Example 5 as a reference. It outlines the key principles and concepts involved in lease notification.

• Explanation of the lease grant process and its implications.
• Details on how to correctly notify HMRC about a lease grant.
• Examples to illustrate the notification procedure.
• Clarification on legal and tax obligations related to lease grants.

Understanding SDLT: Notification of Grant of a Lease – Example 5

What is SDLT?

Stamp Duty Land Tax (SDLT) is a tax you pay when you buy property or land in England and Northern Ireland. It is calculated based on the property’s purchase price or, in some cases, the value of the lease. There are different rules for residential and non-residential properties.

Grant of a Lease

When a lease on a property is granted, it can trigger a tax charge under SDLT. If you are given a lease, you need to notify HMRC about it. This notification is essential for correctly assessing whether SDLT is owed and how much it might be.

Example Explained: SDLT12035 – Notification: Grant of a Lease

Let’s look at an example to illustrate how SDLT works when a lease is granted. This example is cited as SDLTM12035.

Scenario: You are granted a lease for a commercial property that lasts for ten years. The annual rent is £20,000, and the total value of the lease is therefore £200,000 (which is £20,000 multiplied by 10 years).

Calculating SDLT for a Lease

SDLT for leases is typically calculated based on both the rent you will pay and any premium you might pay to get the lease. A premium is a one-time payment made upfront, often in addition to the annual rent.

In our example, there is no premium payment; you are only paying rent. Therefore, calculate SDLT based on the rent alone.

Steps to Calculate SDLT:

1. Determine The Lease Term: Identify how long the lease will last. For instance, this lease lasts for ten years.

2. Identify The Rent Amount: Note the rent amount per year, which in this case is £20,000.

3. Calculate Total Rent: Multiply the annual rent by the number of years. For this lease, it amounts to £200,000.

4. Find SDLT Rates: The current SDLT rates apply to the total rent calculated. The rates vary depending on whether you are dealing with residential or non-residential properties.

For this example, we will assume a rate of 1% applies to the rent for non-residential property.

5. Compute The Tax: Multiply the total rent by the applicable rate. In this case, it would be:

– £200,000 x 1% = £2,000

So, you would owe £2,000 in SDLT for this particular lease.

What If There Is A Premium?

If a premium is involved in the lease grant, SDLT is calculated differently. You would have to consider both the premium and the rent.

For example:

– If you pay an upfront premium of £50,000, along with your annual rent of £20,000, you would sum these amounts when calculating SDLT. The steps would involve:

1. Calculate SDLT on the premium.
2. Calculate SDLT on the rent.
3. Add the two amounts together.

Example Calculation with Premium:

– Rent over ten years = £200,000
– Premium = £50,000
– Combined Total = £250,000

If we assume the same 1% rate applies:

– Total SDLT = £250,000 x 1% = £2,500

You would then owe £2,500 in SDLT if you had a premium payment alongside your rent.

How To Notify HMRC

After calculating the SDLT owed, you must notify HMRC about the lease grant. This notification is done through a specific form.

Steps for Notification:

1. Gather Information: Make sure you have all the necessary details, such as the lease start date, the property address, and the total rent or premium amount.

2. Complete The SDLT Return: Use the SDLT return form provided by HMRC. This form requires you to input the figures you have calculated for both rent and any premium.

3. Submit The Form: Once the form is complete, you must submit it to HMRC. Make sure you keep a copy for your records.

4. Make Payment: You will also need to pay the SDLT amount you have calculated. There is usually a deadline for this payment, and failing to pay on time can lead to penalties.

Understanding Penalties

If you do not notify HMRC or pay the SDLT due, you may face financial penalties. The amount varies depending on how late you are in making the payment.

Common Penalties Include:

– Late filing penalty: If you submit your SDLT return after the deadline, you may incur a penalty amount.
– Late payment penalty: If you pay your tax after the due date, you can face additional charges.

It’s important to take the SDLT process seriously to avoid these fees.

Exemptions and Reliefs

Some situations can provide relief from SDLT or make you exempt from paying it altogether. These situations vary, but some common exemptions include:

– Certain sales to charities.
– Transfers between spouses or civil partners.
– Some first-time purchases of residential properties.

To claim relief, you usually need to mention this when completing your SDLT return.

Resources Available

If you need more information regarding SDLT, lease grants, or specific tax situations, you can visit the HMRC website. They provide a range of guides and detailed information to help clarify SDLT requirements.

– SDLTM12010 – Grant of a Lease Overview
– SDLTM12035 – Notification: Grant of a lease

These resources can be useful for gaining further insights and ensuring you understand your obligations.

Additional Considerations

– Keep records of calculations and notifications sent to HMRC. This information might be useful if HMRC ever queries your SDLT charge later.

– Consult a professional for advice tailored to your situation, especially if dealing with complex properties or multiple leases.

Remember, understanding SDLT and how to notify HMRC correctly can save you a lot of hassle and money in the long run.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM12035 – Notification: Grant of a lease: Example 5

View all HMRC SDLT Guidance Pages Here