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HMRC SDLT: SDLTM13185 – Calculation of Stamp Duty Land Tax (SDLT): Rent: Variable or uncertain rent: Turnover leases

Calculation of Stamp Duty Land Tax (SDLT) for Turnover Leases

When a lease includes rent that varies based on business performance—like profit or turnover—it’s often referred to as a turnover lease. In these cases, the rent amount is unpredictable at the time the lease is granted. To figure out the net present value (NPV) for the first five years of the lease, you need to make a reasonable guess about how much the rent will be. This estimate does not have to come from a professional surveyor, but you should keep records that explain how you arrived at the figure. This will be useful if any questions arise later.

Understanding Turnover Leases

Turnover leases are unique because the rent is directly linked to the income earned by the business occupying the property. Because of this connection to business results, the actual rent amount may not even be known when the lease is up for review. This uncertainty occurs for the following reason:

• The rent due at the end of Year Five or at the end of the lease (if it ends sooner) is often not finalised since the latest business performance data won’t be ready.

As a result, you will need to provide further returns at two key points:

• At the review date, which is after five years or at the end of the lease term if earlier
• When the total rent that should have been paid in the first five years (or shorter lease term) is confirmed

Returns to Submit

When the Lease is Granted

Within 30 days of the lease starting, you must submit an initial return. When calculating the NPV of the rents, follow these steps:

• If the rent is unknown when the lease starts, make a reasonable estimate of what it will be for each of the first five years.
• For any subsequent years, you should use the highest actual or estimated rent for any consecutive 12-month period during the first five years.
• Any possible rent increases beyond the five-year mark are disregarded for SDLT calculations.

Since March 1, 2019, if the lease is notifiable, the initial return must be submitted within 14 days instead of 30.

After Five Years or At Lease Expiry

A revised return must be sent to the Stamp Office within 30 days of reaching the five-year point (or earlier if the lease ends sooner). This return needs to include a recalculation of the NPV based on actual rent paid during the first five years or updated estimates if accounts are not yet finalised. When making this revised calculation, ensure that:

• You recalculate the highest rent based on the information available.

Be aware that interest on any new tax due will start accruing from the filing date, which is 30 days from when the original transaction was filed.

Revising Returns After Knowing Actual Rent

Once the actual rent is confirmed—like when the business accounts are finalised—a revised return must be submitted. This is necessary to avoid penalties, which can be imposed if you do not comply with financial regulations.

In this revised return, you should:

• Use the firm figures for the rent that were finally established.
• Adjust the highest rent figure for any consecutive 12-month period as necessary, to recalculate the NPV.

This return must also be submitted to the Compliance Team at the Birmingham Stamp Office within 30 days after the rent figure is finalised for the first five years of the lease. Again, keep in mind that any extra tax that is owed will start to accrue interest from the filing date (30 days from the effective date) of the original transaction.

Important Considerations for Turnover Leases

It is important to stay organised and keep detailed records throughout the process of managing turnover leases. This helps in accurately calculating the NPV and ensuring compliance with tax regulations. Here are some tips on how to maintain proper documentation:

• Maintain clear records of any rent estimates and the basis on which they were calculated.
• Keep a log of business performance metrics that influence rent calculations.
• Regularly update your records to incorporate changes in business circumstances or rental payments.

By following these guidelines and maintaining organised records, you can navigate the complexities of turnover leases and ensure you meet your obligations regarding Stamp Duty Land Tax.