HMRC SDLT: SDLTM18240 – Notification: Grant of a lease: Example 5

Principles and Concepts of Lease Notification

This section of the HMRC internal manual provides guidance on the notification process for the grant of a lease, specifically Example 5. It covers the following key principles and concepts:

  • Understanding the legal framework surrounding lease grants.
  • Steps involved in notifying HMRC about a lease grant.
  • Examples illustrating different scenarios in lease notifications.
  • Compliance requirements for accurate lease documentation.
  • Clarification on tax implications associated with lease grants.

Understanding SDLT Notifications for Lease Grants

When you are involved in property transactions, particularly leasing, it is important to be aware of the procedures and notifications associated with Stamp Duty Land Tax (SDLT). This guidance will help you navigate the notifications related to the grant of a lease.

What is SDLT?

Stamp Duty Land Tax (SDLT) is a tax you pay when you buy or lease a property over a certain price in England and Northern Ireland. If the property’s value meets or exceeds the threshold, you need to pay SDLT. The tax amount depends on the property price and the lease’s terms.

Notification of Lease Grants

When a lease is granted, there are certain notifications that need to be sent to HMRC. This is to ensure that the tax is calculated correctly based on the details of the lease.

Key Principles of Notification

  • Who Should Notify? – Generally, the person who grants the lease must notify. This could be the landlord or their agent.
  • What Information is Required? – You need to provide specific details about the lease including the date it was granted, the parties involved, and any relevant financial aspects.
  • When to Notify? – Notification must be submitted within a specific timeframe after the lease is granted. It is essential to check the exact deadlines that apply to your case.

Example of Lease Notification

Let’s consider an example to illustrate the process:

  • A landlord grants a lease to a business for a commercial property.
  • The lease is granted for a term of ten years, with an annual rental charge of £30,000.
  • Within 30 days of granting the lease, the landlord must submit a notification to HMRC, detailing aspects such as the lease duration and the total rent payable over the term.

Categories of Leases

There are different types of leases that could require SDLT notifications. Understanding the type of lease being granted is important for the correct application of SDLT:

  • Short Leases – Typically, these are leases granted for a term of less than 7 years. In some cases, short leases may not be subject to SDLT.
  • Long Leases – These are usually for a term of 7 years or more and typically incur SDLT.

Examples of Lease Categories

  • For a short lease of 3 years granted at an annual rent of £18,000, you may not need to pay SDLT, depending on the total value calculated over the lease period.
  • Conversely, a long lease of 12 years at an annual rent of £50,000 would require the landlord to notify HMRC and pay SDLT based on the overall rental income.

Calculating SDLT for Leases

When you grant a lease, you need to calculate the total SDLT owed. Here are some basic principles:

  • Rent and Premium – The SDLT is calculated on the rent amount and any premium paid at the start of the lease.
  • Calculating the Total Rent – If the rent is £20,000 per year for a term of 10 years, the total rent would be £200,000 for the entire term.

Using Examples for Calculation

If a lease is granted with:

  • An annual rent of £25,000 for a term of 15 years
  • A premium of £100,000 paid at the beginning

The total amount you should consider for SDLT calculation would be:

  • Total Rent: £25,000 x 15 = £375,000
  • Premium: £100,000
  • Total for SDLT Calculation: £375,000 + £100,000 = £475,000

Filing the SDLT Return

After calculating the SDLT, you need to file a return with HMRC. This is how you do it:

  • Filling Out the Return – You can file the return online using HMRC’s systems or through a paper form if preferred.
  • Payment Deadlines – Payment typically must be made within 14 days of the grant of the lease.

Example of Filing

If you are a landlord who has granted a lease on 1st March 2023, you would need to:

  • File your SDLT return by 15th March 2023.
  • Pay any SDLT owed by the same date.

Special Cases

There are certain situations that may affect how you handle SDLT notifications.

  • Assignments of Leases – If you assign your lease to another tenant, this may require a separate notification and potential SDLT consideration.
  • Rent Reviews – If there are rent reviews outlined in the lease agreement, these might influence the SDLT calculation.

Examples of Special Cases

  • If a lease for a shop is assigned to a new tenant, the new tenant may need to notify HMRC if the total rent meets the SDLT threshold.
  • If the lease includes a provision for a rent increase after five years, the potential impact on SDLT must be reviewed during the years ahead.

Penalties for Non-Compliance

It is essential to comply with SDLT notification requirements. Failing to notify or pay SDLT can result in penalties. Here’s what you should know:

  • Late Notification – If you fail to notify HMRC in time, penalties can range from a fixed amount to a percentage of the unpaid tax.
  • Failure to Pay – If SDLT is not paid, interest may accumulate, and further penalties could apply.

Example of Penalties

  • If you file your return 10 days late, a fixed penalty of £100 may apply.
  • Additional tax owed with late payment could also accrue interest at HMRC’s specified rate.

Additional Considerations

Understanding SDLT regulations can be complex. Here are additional points to consider:

  • Seek Professional Advice – If you are uncertain about any aspect of SDLT or your specific obligations, it can be beneficial to consult a tax professional.
  • Keep Records – Always maintain detailed records related to lease agreements and SDLT calculations, as this can help if HMRC has any queries in the future.

Final Examples for Consideration

  • If you plan to lease a new residential property, ensure any agreements are clear and that you fully understand your SDLT obligations to avoid penalties.
  • If an existing commercial lease is extended, make sure to check whether this triggers a

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM18240 – Notification: Grant of a lease: Example 5

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Written by Land Tax Expert Nick Garner.
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