HMRC SDLT: SDLTM18425 – Calculation of stamp duty land tax: Lease premium: Relevant rental figure: Example 2

Principles and Concepts of Stamp Duty Land Tax Calculation

This section of the HMRC internal manual provides guidance on calculating Stamp Duty Land Tax (SDLT) for lease premiums, focusing on the relevant rental figure. It uses Example 2 to illustrate the process.

• Explains the calculation of SDLT for lease premiums.
• Focuses on determining the relevant rental figure.
• Provides a detailed example to clarify the calculation process.
• Intended for internal use by HMRC staff.

Understanding Stamp Duty Land Tax on Lease Premiums

What is Stamp Duty Land Tax (SDLT)?

Stamp Duty Land Tax, commonly known as SDLT, is a tax that buyers must pay when they purchase land or property in England and Northern Ireland. This tax is calculated based on the purchase price or the value of the property.

What is a Lease Premium?

A lease premium is an upfront payment made when acquiring a lease for a property. This payment can be seen as a sort of purchase price for the lease. In addition to the lease premium, tenants also often pay rent for the property throughout the lease period.

Calculating SDLT on a Lease Premium

When calculating SDLT for a lease, there are two key components to consider:
– The lease premium itself
– The rent that will be paid over the duration of the lease

Calculating the SDLT can be tricky because both the premium and the annual rent influence the tax owed.

Relevant Rental Figure

The relevant rental figure is crucial for calculating SDLT on leases. This figure is typically the amount of rent paid annually on the lease. When determining how much SDLT is due, it’s essential to focus on the highest rent figure when considering long-term leases.

For example, if:
– Lease premium: £300,000
– Annual rent: £30,000

The relevant rental figure would be the £30,000 annual rent. This figure helps to calculate the SDLT alongside the lease premium.

How to Calculate SDLT for the Example Given

To illustrate the calculation, let’s consider the example where someone pays a lease premium and an annual rent.

1. Identify the Lease Premium and Rental Amount
– Lease Premium: £300,000
– Annual Rent: £30,000

2. Determine the SDLT Rates
The SDLT is tiered, meaning different portions of the total amount are taxed at different rates. Although these rates can vary, the current structured rates might typically look like this:
– Up to £125,000: 0%
– £125,001 to £250,000: 2%
– £250,001 to £925,000: 5%
– Over £925,001: 10%

Using numbers to examine the premium alone:
– For the first £125,000: 0% means no tax
– For the next £125,000 (from £125,001 to £250,000): 2% applies
– For the amount from £250,001 to £300,000: 5% applies

3. Calculating SDLT on the Lease Premium
The calculation would go as follows:
– For the first £125,000: 0% = £0
– For the second £125,000: 2% of £125,000 = £2,500
– For the remaining £50,000 (from £250,001 to £300,000): 5% = £2,500

So, the total SDLT on the lease premium would be:
– £0 + £2,500 + £2,500 = £5,000

Including the Rent in the Calculation

Next, we must also consider the annual rent. With the annual rent of £30,000, we need to convert this into a stamp duty value.

To do this, you must:
– Multiply the annual rent by the length of the lease in years.
– Use a multiplier of 365 days to convert this figure into a present value figure. For example, if a lease lasts for 20 years, calculate £30,000 x 20 = £600,000.

Then you would add this amount to the lease premium when determining the total SDLT.

SDLT on the Rent Calculation

Using the example rental figure:
– £600,000 would include the rent amount over the 20-year term.

Using the same rate structure as before, you would need to:
– For the first £125,000: 0% = £0
– For £125,001 to £250,000: 2%
– For £250,001 to £600,000: 5%

Calculating:
– For the first £125,000: 0% = £0
– For the next £125,000: 2% = £2,500
– For the remaining rent (from £250,001 to £600,000):
– £350,000 at 5% = £17,500

This totals:
– £0 + £2,500 + £17,500 = £20,000

Final SDLT Amount

To find the total SDLT amount, add the SDLT calculated from the lease premium and the rent:
– SDLT on the Lease Premium: £5,000
– SDLT on the Rent: £20,000

The Total SDLT:
– £5,000 + £20,000 = £25,000

Important Considerations

– The SDLT must be paid within 14 days from the date of completion of the lease.
– Failing to pay SDLT on time could lead to penalties, so it is essential to ensure payment is made promptly.

What if the Lease Has a Variable Rent?

If a lease has variable rent figures, the SDLT owed might need recalculating based on the highest expected rental amount. It’s important to keep track of any changes in rental agreements to ensure that the SDLT calculation remains accurate.

Exceptions and Special Cases

Sometimes, properties or transactions may be exempt from SDLT. Examples include certain transfers of property between family members or some charitable donations.

Each situation will have its own specific rules, so make sure to review these details based on the circumstances of the property transaction.

Further Resources

If you want to learn more about SDLT or have specific questions, do consult the appropriate resources available through HMRC. For example, the SDLT reference site contains comprehensive details and scenarios.

For detailed guidelines, seek information regarding SDLT through resources like SDLTM18425 – Calculation of stamp duty land tax: Lease premium: Relevant rental figure: Example 2.

Remember, rules and calculations can change, so it’s always a good idea to stay up-to-date or consult with tax professionals if you’re uncertain.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM18425 – Calculation of stamp duty land tax: Lease premium: Relevant rental figure: Example 2

View all HMRC SDLT Guidance Pages Here