HMRC SDLT: SDLTM17110 – Miscellaneous Provisions: ‘Rent’ payable for a period before grant

SDLTM17110 – Miscellaneous Provisions: ‘Rent’ Payable for a Period Before Grant

This section of the HMRC internal manual provides guidance on the treatment of ‘rent’ payable for a period before the grant of a lease. It outlines key principles and considerations for understanding these provisions.

  • Explains the concept of ‘rent’ in the context of lease agreements.
  • Details the legal framework governing pre-grant rent payments.
  • Clarifies how these payments are treated for tax purposes.
  • Provides examples to illustrate the application of these rules.

SDLTM17110 – Miscellaneous Provisions: ‘Rent’ Payable for a Period Before Grant

This article discusses how certain rent agreements work when a lease is backdated to include a period before it was officially granted, and how this affects Stamp Duty Land Tax (SDLT) obligations.

Understanding Lease Terms and Backdating

In property law, a lease cannot give ownership of a property for a time that has already passed. However, sometimes the contract for a lease states that it will apply from a date before it is officially granted. Here are some situations where this can happen:

  • Aligning Connected Leases: If a landlord has multiple properties in a similar location, leases may be signed on different days but set to start on the same date to make management easier. Generally, the landlord cannot collect rent for the time between this agreed date and when the lease is officially granted.
  • New Lease Covering Pre-grant Occupation: When a new lease is backdated to include a period when the tenant was already using the property, often based on a previous agreement, any fees could have been set as part of that arrangement.
  • Renewal Lease Covering ‘Holding Over’: If a tenant stays in a property after the old lease expires, the new lease may be set to begin right after the old one ends.

General Rule for SDLT

Usually, for SDLT purposes, a lease starts from the day it is granted. There is an exception for renewal leases. The specific criteria in legislation state the following:

  • The tenant continues occupying the property even after the lease’s terms say it should have ended.
  • A new lease for the same or a similar property is granted.
  • The new lease states it begins on or right after the end date of the old lease.

In these renewal cases, the SDLT obligations start from the date specified in the lease. More details can be found at SDLTM14110.

Assessing Rent for Pre-grant Period

When evaluating the ‘rent’ to be considered for SDLT, amounts that cover the time before the lease was officially granted do not count. This is according to the regulations. A landlord typically needs a clear agreement to recover any rent for the pre-grant period.

Determining if the consideration can be counted as rent depends on:

  • Whether the landlord has the right to it based on the lease.
  • If the rent relates to the pre-grant period.
  • If it is associated with the new lease or is based on a previous agreement or set up.

Even amounts that refer to the pre-grant period but are not counted as rent for SDLT can still be charged as a premium, meaning they may be taxable in a different way.

Example of No Charge to SDLT

If the landlord cannot recover any payment linked to the pre-grant period, there will be no SDLT on that period’s rent. Refer to Example 1 at SDLTM17115 for further guidance on this scenario.

Example of Chargeable Consideration

When a tenant occupies the property before the formal grant of the lease, if there is a charge, it is typically considered rent under a notional lease based on an earlier agreement. For further information on this treatment, check SDLTM17010.

Renewal Leases Not Covered by FA06

If the renewal leases do not come under the FA06 rules (such as those granted before 19 July 2006), it becomes important to determine whether any rent payments for the time before the lease relates to the old lease or the new lease. This needs to be assessed individually.

Instance of Stable Rent

If the rent amount is the same as under the earlier lease terms, it is related to that previous lease. Therefore, it is not subject to SDLT if the old lease was granted before 1 December 2003.

Instance of Increased Rent

If the rent has gone up from what was set under the old lease, how it is treated for tax purposes will depend on why the increase occurred:

  • If the increase was agreed to facilitate the new lease, then that increase will be taxed as a premium. The rest of the rent for the period before the new lease is granted will not incur SDLT.
  • If there was no specific agreement for the increase, it will be considered as additional relating to the old lease. This will be treated as a change to the old lease, triggering a separate SDLT evaluation according to the relevant regulations.

To find out more about this kind of tax treatment for leases, you can view SDLTM15010.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM17110 – Miscellaneous Provisions: ‘Rent’ payable for a period before grant

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