Read the original guidance here:
HMRC SDLT: Guide on SDLT Implications for Leases Continuing Beyond Fixed Terms

Guidance on Leases Treated as Continuing After a Fixed Term

Understanding the Concept of Holding Over

If a lease is granted for a fixed period and continues beyond that period until either party ends it, this situation is known as ‘holding over.’ This can happen when a lease specifies a fixed term and there is an agreement for it to continue afterwards, or if the law requires it to continue beyond the initial term.

Types of Leases and Their Treatment for SDLT

In terms of Stamp Duty Land Tax (SDLT), a lease that is expected to continue beyond the original term is treated as if it lasts for the full original term specified at the start. This applies particularly to:

• Business tenancies covered by Part II of the Landlord and Tenant Act 1954, which usually continue until they are officially ended or a new lease is arranged.
• Fixed-term business tenancies that are contracted out of the Landlord and Tenant Act 1954 may have different rules if the right to renew the lease is lost.

What Happens When a Lease Expires?

If a tenant remains in the property after the fixed term has ended, the situation can vary:

• If the tenant does not have the right to continue, they may be trespassing.
• The party may have a tenancy at will or a contractual licence, which do not affect SDLT.

However, if the law recognises that the lease continues and rent is still due, then SDLT implications will apply. Here are some scenarios where this happens:

• If a business tenancy falls under Part II of the Landlord and Tenant Act 1954, it usually continues until it is terminated or a new lease is signed.
• If a business tenancy was contracted out of Part II of the Landlord and Tenant Act 1954, losing the right to renew may create a new implied lease.
• For shorthold tenancy agreements in residential properties granted for a fixed term, once this term ends, it typically transitions into a statutory periodic tenancy.

Extended Lease Term for SDLT Purposes

According to FA03/SCH17A/PARA3 provisions, for SDLT calculations, these types of leases are deemed to last one year longer than the original lease length. This rule applies regardless of any legal reasons that may suggest a different time frame should be applied.

Filing SDLT Returns

If the extension of a lease increases its present value and leads to SDLT being due, you must inform the Stamp Taxes office. You have 30 days from the end of the first year of holding over to submit this information, unless a renewal lease is signed during that year. However, if the lease was created before 1 December 2003, different rules may apply.

Post-1 March 2019 Rules

Starting from 1 March 2019, if you are required to submit a return because the lease has become notifiable for the first time, you must do this within 14 days of the end of the first year of holding over.

Continuation of a Lease

If the lease keeps being extended beyond that initial one-year period, it will continue to be treated as being extended for an additional year. This continues until a new lease is established or the lease is formally terminated. In such cases, if you need to file a return, it should be sent to Stamp Taxes within 30 days of the end of the latest year of holding over.

Handling Further Returns After 1 March 2019

From 1 March 2019, if a return is required again because the continuation of the lease has become notifiable, it must be submitted within 14 days of the end of the latest year that applies to the holding over.

Previous Lease Rules Before 1 December 2003

For leases created before 1 December 2003, if an additional SDLT charge arises solely due to the lease extension, these rules do not apply if the lease was already subjected to stamp duty.

Key Points to Remember

• Holding Over: This is when a lease continues after a fixed period ends.
• Lease Treatment for SDLT: Leases may be treated as longer than they are in reality for tax purposes.
• SDLT Returns: Notification of increased lease values must occur within set timeframes.
• Older Leases: Different rules apply to leases created before 1 December 2003.

Examples of Lease Scenarios

To illustrate these principles, consider the following examples:

• If a business lease for a café is established for five years and the contract states it continues after the five years unless ended, it is treated as a six-year lease for SDLT purposes.
• If the café lease is contracted out of the Landlord and Tenant Act 1954, and the tenant does not need to vacate when the five years are up, they may not automatically have the right to stay unless a new agreement is reached.
• For a residential let that lasts six months, once this period concludes, it usually shifts into a monthly tenancy, and that continuous rental would trigger SDLT considerations if it leads to an increased value.