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HMRC SDLT: SDLTM12050 – Notification: Continuation of a lease

SDLT Notification for Continued Leases

If a Stamp Duty Land Tax (SDLT) lease continues beyond its original term, there are specific circumstances under which it becomes necessary to notify HMRC about this continuation. Understanding when and how to report these changes is crucial for managing your lease and avoiding excessive tax obligations.

When is a Lease Notifiable?

1. Lease Not Notifiable on Grant: If a lease was granted for a term of less than seven years and the payment was below the SDLT threshold when it started, then the lease will not be subject to SDLT at the time of the grant. However, if the net present value (NPV) of rents over the extended term now exceeds the relevant SDLT threshold, it becomes notifiable.
2. Lease Notifiable on Grant: If the lease originally was subject to SDLT—either because it was for seven years or more, or if it was under seven years but the original payment exceeded the SDLT threshold—additional charges apply if the NPV increases when the lease is extended. It is important to note that a lease merely growing to seven years or more does not automatically make it notifiable.

How to Notify HMRC

When a lease becomes notifiable for the first time, you need to inform HMRC within 14 days after the first year following the end of the original fixed term. You will use form SDLT1 and any necessary supplementary forms for this notification.

If you have already notified HMRC about the lease and it continues, but you either owe more SDLT or it becomes chargeable, you must notify HMRC within 30 days after the end of each year of continuation. This includes cases where a previously non-notifiable lease becomes subject to SDLT on continuation. Notification can be done through a letter to the Stamp Office, including the Unique Transaction Reference Number (UTRN) for the initial transaction and details about the original and extended lease terms.

Treatment of Continuing Leases

The extended portion of a lease is treated as if it was granted at the time the original lease was issued, regardless of whether it had a fixed or indefinite term. Therefore:

• Make NPV calculations as if the extended lease was granted when the original was.
• Any changes to thresholds, rates, or SDLT reliefs since the original grant do not affect your tax liability.
• If VAT was not chargeable on the rent when the lease was granted, any subsequent imposition of VAT does not alter the SDLT due.

Examples of Lease Continuation and Notification

Example 1: Non-Residential Lease Extension

A 10-year non-residential lease starts on 1 December 2020, with an annual rent of £50,000. The NPV for this lease is £415,830, which is under the non-residential SDLT threshold of £150,000. At the grant time on 1 December 2020, SDLT of £2,658 was paid.

The tenant stays on after 30 November 2030 while negotiating new terms, meaning the lease is treated as extended by one year. Now, the NPV is £450,077. Regardless of any changes afterward, the additional tax is calculated based on rates, thresholds, and reliefs effective on the original grant date.

The calculation is as follows:

• New NPV: £450,077
• Threshold: £150,000
• Taxable amount: £450,077 – £150,000 = £300,077
• Tax due: £300,077 x 1% = £3,000
• Less tax already paid: £2,658
• Additional tax due: £342

This amount must be notified within 30 days after the end of the first year of holding over, specifically by 31 December 2031.

Example 2: Further Extension of a Non-Residential Lease

Continuing with the lease from Example 1, the tenant remains in occupation past 30 November 2031, again by operation of law. This means the lease is treated as being extended for an additional year, now making it a 12-year lease.

The new NPV is £483,166. Again, the additional tax will be calculated on the same basis as before:

• New NPV: £483,166
• Taxable amount: £483,166 – £150,000 = £333,166
• Tax due: £333,166 x 1% = £3,331
• Less tax already paid: £3,000
• Additional tax due: £331

This additional tax must also be notified within 30 days after the end of the second year of holding over, by 31 December 2032.

Example 3: Residential Shorthold Tenancy

A residential shorthold tenancy is granted on 1 April 2021 for a four-year term at an annual rent of £95,000. Initially, the NPV of £348,942 is under the residential threshold of £500,000, so the lease doesn’t require notification.

After 31 March 2025, the tenant continues paying the same rent, resulting in an automatically renewed periodic tenancy on 1 April 2025. The lease is now effectively extended to five years, with an updated NPV of £428,929, still below the threshold, so notification is not necessary.

If the tenant remains in their lease past 31 March 2026, the lease timeframe increases to six years with a new NPV of £506,212. Tax becomes applicable because the NPV now exceeds the threshold:

• Taxable amount: £506,212 – £500,000 = £6,212
• Tax due: £6,212 x 1% = £62

This must be notified using form SDLT1 (plus any supplementary forms) within 14 days following the end of the extended lease period (by 15 April 2027). Changes in the threshold over time do not affect this calculation, as the relevant threshold is the one set when the lease was granted.