HMRC SDLT: SDLTM13155 – Calculation of Stamp Duty Land Tax (SDLT): Rent: Variable or uncertain rent: Review of estimate

Principles of SDLT Calculation for Variable or Uncertain Rent

This section of the HMRC internal manual provides guidance on calculating Stamp Duty Land Tax (SDLT) for leases with variable or uncertain rent. It focuses on reviewing estimates to ensure accurate tax calculations.

• Explains the method for estimating variable rent.
• Details the process for reviewing and adjusting initial estimates.
• Outlines the implications of incorrect estimations on SDLT liability.
• Provides examples to illustrate the calculation process.

Understanding the Calculation of Stamp Duty Land Tax (SDLT) for Variable or Uncertain Rent

When dealing with leases that have variable or uncertain rent, it’s essential to calculate the net present value (NPV) correctly. This helps determine the amount of Stamp Duty Land Tax (SDLT) owed. In this guide, we’ll explain how to handle a situation where estimated or contingent rents might affect your SDLT calculations. We reference important regulations, specifically SDLTM13150 for further details.

When to Review the NPV

Reviews of the NPV need to happen at certain times:

• At the end of the fifth year of the lease term.
• Earlier if the actual rent for the first five years becomes known. This could occur when a rent review is agreed upon or determined within those five years.

This requirement is outlined in FA03/SCH17A/PARA8. It’s important to monitor these timelines to ensure your calculations remain accurate.

What to Do During the Review

When you’re conducting the review, there are several recalculations to be made:

• Re-calculate the NPV for the first five years of the lease using the actual rents paid instead of the previous estimates.
• Determine any new highest rent for the years beyond the first five, following procedures in SDLTM13160.
• Calculate the NPV for years after the first five using the newly identified highest rent.
• Finally, total the new NPV for the entire lease term.

These steps are crucial to ensure the accuracy of your tax obligations.

Submitting a Revised Return

If the updated total NPV is larger than the amount previously reported, you must submit a revised return. Here’s how:

• Send a letter to the Stamp Taxes office within 30 days of the review date.
• Pay the additional tax due as part of this process.
• No SDLT1 form is necessary unless this is the first notification of the transaction.

Since 1 March 2019, if this revision is the first notification of the transaction, you must complete the SDLT return and pay the tax within 14 days of your review date.

What If the Revised NPV is Lower?

If your recalculated NPV is less than what you initially submitted, you can make a claim for repayment. This also requires sending a letter to the Stamp Office.

Understanding Interest on Additional Tax and Overpayments

Interest will apply to any additional tax you owe:

• This interest starts accruing from 30 days after the effective date of the original transaction, following the instructions in FA03/S87(1) and S87(3)(c).
• If you end up overpaying tax, interest on this overpayment will be calculated from the date it was initially paid.

It’s important to get these details correct, to avoid unexpected costs.

Recalculation Based on Effective Date

When performing calculations for the revised tax, remember:

• Calculate it as of the effective date of the initial transaction.
• This remains true even if:
• Tax rates or thresholds have changed since that effective date.
• The terms of the lease have changed.
• The VAT treatment has been altered, such as if the landlord has decided to waive exemption (see SDLTM12050).

What Happens After the Fifth Year?

Once you have reached the end of the fifth year, you should reassess the rent. At this point:

• Use the highest rent from the first five years to calculate any additional SDLT that may be due.
• You do not have to revisit the NPV again after this five-year mark.

Claiming for Overpayment of SDLT

If your recalculations reveal an overpayment of SDLT, it’s possible to claim this back according to FA03/SCH17A para 8(5). There is no time limit on this claim, which is beneficial in situations where you may be unsure whether or not to apply for a refund.

Your Responsibilities

As a participant in any lease transaction subject to SDLT, it’s essential to fully understand your responsibilities. Ensuring your NPV calculations are accurate saves you from potential liabilities and allows for the possibility of claiming repayments when overpaid. Keep a close check on deadlines for reviews and submissions to avoid penalties.

This guidance serves to clarify the processes and considerations needed when calculating SDLT, particularly in situations involving variable or uncertain rent. Always stay updated on any legislative changes that might affect your obligations, and consult with a tax advisor when necessary to ensure compliance and accuracy in your SDLT dealings.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM13155 – Calculation of Stamp Duty Land Tax (SDLT): Rent: Variable or uncertain rent: Review of estimate

View all HMRC SDLT Guidance Pages Here