Read the original guidance here:
HMRC SDLT: SDLTM14015 – Term of a lease: Leases for a fixed term: Definition

Understanding Fixed Term Leases for SDLT

This article explains how defined or fixed term leases work for Stamp Duty Land Tax (SDLT) purposes. A lease is considered a fixed term lease when its duration can be determined at the time it is granted. This determination can be made from the lease document itself or related documents, such as an agreement to lease or a completion certificate.

Definition of a Fixed Term Lease

A lease is classified as a fixed term lease if:

• It clearly states an end date within the text of the lease.
• It specifies a fixed duration that starts from the date of the lease’s grant.

According to the case Bradshaw v Pawley [1980] 1 W.L.R. 10, the term of a lease for a fixed period is determined as follows:

• The total contractual term stated in the lease, or if shorter,
• The duration from the lease’s grant date until the end of the specified contractual term.

Ignoring Certain Contingencies

When calculating the initial charge to SDLT, any conditions that might lead to the lease ending before its stated term or any parties’ rights to terminate or renew the lease are not considered. For more details, see FA03/SCH17A/PARA2.

If you want to explore the tax outcomes related to lease terminations or renewals after a lease has begun, you can refer to SDLT14055 and the subsequent sections SDLT14080 to SDLT14120.

Understanding Lease Terms Through Case Law

Judicial decisions have established that if a lease specifies a term starting from a given date, that date itself does not count as part of the term. For example:

• A lease for 10 years from 25 March 2006 actually starts on 26 March 2006 and ends on 25 March 2016.
• A lease for 10 years from and including 25 March 2006 starts on 25 March 2006 and ends on 24 March 2016.

To avoid confusion, all examples discussed here will state commencement dates ‘from and including.’

General Rules for Lease Commencement

The standard guidance in England and Northern Ireland is that a lease cannot start before the date on which it is granted. However, there are exceptions when it comes to renewal leases:

• If a renewal lease is backdated and granted on or after 19 July 2006, the general rule is not applied for SDLT considerations. This is outlined in FA03/SCH17A/PARA9A.

For practical illustrations of these principles, refer to sections SDLT14020 to SDLT14030.

Examples of Different Lease Terms

To further clarify how lease terms are defined, here are some straightforward examples:

• Example 1: A lease is stated as ‘5 years from 1 January 2023’. Here, the lease commences on 2 January 2023 and concludes on 1 January 2028.
• Example 2: In contrast, a lease indicated as ‘5 years from and including 1 January 2023’ will start on 1 January 2023 and end on 31 December 2027.
• Example 3: If a lease has a fixed term of 3 years beginning on 15 March 2022, and the wording states ‘from 15 March 2022’, it will start on 15 March 2022 and finish on 14 March 2025.

The Effect of Conditional Terms in Leases

It’s important to note that certain conditions laid out in the lease may not impact the SDLT calculations. For instance:

• If a lease states it could end early if a particular event occurs, this detail doesn’t affect how SDLT is assessed initially.
• Only the set term matters when calculating SDLT, regardless of any potential events that might terminate the lease early.

Renewal Leases and Their Backdating

Renewal leases can have different treatment under SDLT rules, especially when backdating is involved:

• If a party agrees to renew a lease and backdates this renewal, SDLT rules provide specific allowances that permit this scenario.
• However, this only applies when the lease being renewed is granted on or after 19 July 2006.

Complexity of Lease Agreements

Lease agreements can sometimes contain more complex provisions or conditions. Here are a few points to consider:

• Make sure to carefully review any clauses that might mention the lease’s termination or renewal.
• Understanding how these clauses impact SDLT is essential, which is why referring to specific guidelines is important.

Further Guidance on SDLT and Leases

For anyone needing more detailed insight into specific lease situations, it is worth checking the associated SDLT guidance:

• For comprehensive details on leases and how SDLT applies, refer to SDLT14055.
• To understand renewals in greater depth, peruse through SDLT14100 and SDLTM14120.