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HMRC SDLT: Calculating Chargeable Consideration for Lease Transfer in Non-Residential Property Partnership

Understanding Chargeable Consideration with Rental Income

When calculating stamp duty land tax (SDLT) for a lease of non-residential property, it’s essential to understand what chargeable consideration is. This includes the amount received for granting the lease and any rent payable over time. Below are key principles and an example to illustrate how this works.

Key Concepts

Chargeable Consideration

Chargeable consideration generally refers to the total amount paid or payable for a property. This includes:

• Any premium received for the lease.
• The net present value (NPV) of rents that will be paid over the term of the lease.

Net Present Value of Rents

The net present value is a method used to evaluate the worth of future rental payments today. This considers the time value of money, helping to understand what future rent payments are worth in present terms.

Thresholds and Rates

When calculating SDLT, it’s important to be aware of any current thresholds and rates that apply. For non-residential property, as of the latest update, the threshold is £150,000. This means that if the chargeable consideration is below this amount, no SDLT will be due. If it exceeds the threshold, SDLT is payable on the excess.

Example Scenario

To make these concepts clearer, let’s look at a practical example involving a partnership and a lease of non-residential property:

Details of the Partnership

A partnership consisting of three partners enters into a lease agreement. One of these partners, Partner A, is not connected to the other two partners for the purpose of legislation under FA03/Sch15/Part3. Let’s say Partner A has a 25% share of the income profits from the partnership. When the lease is granted, Partner A’s interest is increased from 25% to 100%.

Calculating Chargeable Consideration

The calculation for the chargeable consideration involves the following steps:

Step 1: Calculate Lower Proportions

From the lease agreement, using the formula in paragraph 20 of the regulations, the lower proportion comes to 25.

Step 2: Determine Net Present Value of Rents

According to FA03/Sch5, the net present value of the rents is found to be £100,000. This means, when considering all future rent payments discounted back to their present value, they are worth £100,000 today.

Step 3: Premium Charge

The partnership charges a premium of £240,000 for the lease. This amount is accepted as being at market value.

Step 4: Chargeable Consideration Calculation

The chargeable consideration for the transfer can now be computed:

Chargeable consideration = Market value of the premium × (100 – SLP)%

In this example:

Chargeable consideration = £240,000 × (100 – 25)% = £240,000 × 75% = £180,000

Assessing SDLT Due

Now, we compare the chargeable consideration amount to the current threshold for SDLT:

The current threshold for non-residential property is £150,000.

Since the chargeable consideration is £180,000, which exceeds the threshold by £30,000, SDLT will be due on this excess amount.

Calculating SDLT on the Premium

The SDLT payable on the excess amount of the premium is:

SDLT on premium = Excess £30,000 × SDLT Rate (2%)

So, SDLT due on the premium is:

SDLT on premium = £30,000 × 2% = £600

Relevant Chargeable Proportion of Net Present Value

The relevant chargeable proportion of the net present value of the rents is calculated as follows:

Relevant chargeable proportion = NPV of rents × (100 – SLP)%

In our case:

Relevant chargeable proportion = £100,000 × (100 – 25)% = £100,000 × 75% = £75,000

Evaluation Against the Threshold

Once again, we compare this rental chargeable amount against the threshold. With the current threshold being £150,000, and the rental element calculated as £75,000, this is below the threshold. Therefore, no SDLT will be due on the rental portion of the consideration.

Total SDLT Due

To sum it all up, the overall SDLT amount due on this transaction would be:

Total SDLT = SDLT on premium + SDLT on rental element

Since the rental element is below the threshold, only the SDLT on the premium amount of £600 is due.

Final Calculation Example

In this example, the SDLT due on the transaction totals:

SDLT = £600

Further Considerations

It’s important to note that had the chargeable amount exceeded the threshold for the rental element, SDLT would have been calculated on the total of both the premium and any applicable rental payments.

Tax obligations can change, and it is essential to remain informed about current tax laws and SDLT rates to ensure compliance when engaging in property transactions.