HMRC SDLT: SDLTM13210 – Calculation of Stamp Duty Land Tax (SDLT): Rent: Variable or uncertain rent: Example 3

Principles and Concepts of SDLT Calculation for Variable Rent

This section of the HMRC internal manual provides guidance on calculating Stamp Duty Land Tax (SDLT) for scenarios involving variable or uncertain rent. It includes practical examples to illustrate the application of these principles.

• Explains the calculation process for SDLT on variable rent.
• Provides Example 3 to demonstrate the application of these calculations.
• Clarifies how to handle uncertain rent situations.
• Offers insight into HMRC’s approach to SDLT on variable rent.

Understanding SDLT Calculation for Variable Rent

Overview of the Lease Scenario

In this guidance, we will explore how to calculate Stamp Duty Land Tax (SDLT) in a situation involving variable rent. We will look at a specific example of a lease agreement granted on 1 January 2018 for a duration of ten years. The lease details are as follows:

– Initial rent: £100,000 per year
– Rent increase: £130,000 per year from 1 January 2022
– Further increase: £140,000 per year from 1 January 2026

Rent Payments During the Lease

The rent payments for the first five years of the lease are structured as follows:

– Year 1: £100,000
– Year 2: £100,000
– Year 3: £100,000
– Year 4: £100,000
– Year 5: £130,000

This pattern shows a stable rent for the first four years, followed by an increase in the fifth year.

Understanding Variable Rent

In leases where the rent changes over time, known as variable rent, one key point is that the actual rent for the later years is not immediately considered when calculating the net present value (NPV) for SDLT. Instead, the highest rent amount paid within the first five years is taken into account for the calculation.

Calculating the NPV for Years 6-10

For the remaining years (Year 6 to Year 10), the calculation will use the highest amount paid during the first five years instead of the anticipated future rent. In our example, the highest rent paid during those initial years is £130,000 per annum (as observed in Year 5).

#### Key Calculation Steps:
– Take the highest rent for Years 1-5: £130,000
– Use this amount for calculating the NPV for Years 6 to 10

This method ensures that future potential rent increases are not considered until the end of the initial five-year period.

Why Year 9 Rent Increase is Ignored

Although there is another rent increase planned for Year 9 (to £140,000), this figure is not included in the SDLT calculation at this stage. The reasoning is straightforward:

– The calculation focuses solely on the rent figures from the first five years.
– The rent increase in Year 9 occurs after the initial five-year period, so it does not affect the current NPV calculation.

Revised Return Requirements

After the initial five-year period, if the only situation is that the rent has risen after five years and there are no other estimated or uncertain figures in the original SDLT calculation, there is no obligation to submit a revised tax return. This means that, in our example, there will be no need to make any adjustments or submit additional documentation after Year 5.

Example Recap

To bring everything together, let’s recap the situation we examined:

1. Initial Lease: A ten-year lease starting in 2018 with varying rent.
2. First Five Years’ Rent:
– Years 1 to 4: Consistent at £100,000
– Year 5: Increased to £130,000
3. NPV Calculation:
– Use the highest rent of £130,000 from the first five years for the calculation of SDLT for the remaining years.
4. No Revised Return Required: No changes need to be made after Year 5 as there are no other estimated figures.

This example clarifies how variable rent can affect SDLT calculations and what steps to take during different phases of the lease.

For further details, refer to the SDLT guidance at SDLTM13210 – Calculation of Stamp Duty Land Tax (SDLT): Rent: Variable or uncertain rent: Example 3.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM13210 – Calculation of Stamp Duty Land Tax (SDLT): Rent: Variable or uncertain rent: Example 3

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