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HMRC SDLT: SDLTM13215 – Calculation of stamp duty: Rent: Variable or uncertain rent: Example 4

Calculating Stamp Duty for Variable Rent: Example 4

When assessing stamp duty for a lease with variable or uncertain rent, it is important to use the net present value (NPV) of the lease. This guide will explain how to carry out this calculation, using an example to clarify the process.

Understanding the Lease Terms

Let’s look at a specific case. A lease is granted for a duration of four years starting on 1 April 2018. The initial rent for the first year is set at £100,000 per year. This rent is expected to increase by 4% each subsequent year.

Calculating the Net Present Value (NPV)

The net present value (NPV) of the lease must be calculated based on certain conditions:

• The rent increases need to be known at the time the lease is granted.
• The rent increases must occur within the first five years of the lease term.
• The increases should not be based on the Retail Price Index (RPI).

In this example, we are able to provide the yearly figures for rent, which will be used to calculate the NPV:

Yearly Rent Breakdown

The expected rent for each year of the lease is as follows:

• Year 1: £100,000
• Year 2: £104,000
• Year 3: £108,160
• Year 4: £112,486

Using Fixed Increases for NPV Calculation

In this scenario, the NPV calculation does not require adjustments or re-evaluations. This is because the future rent increases have already been determined and are included in the initial NPV calculation. These amounts are not speculative, nor are they based on conditions that may change.

Conclusion of Example Calculation

It is essential to ensure that the NPV reflects only those rent increases that are predetermined and certain. This approach simplifies the calculation process and ensures compliance with the stamp duty requirements.