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HMRC SDLT: SDLTM13235 – Calculation of stamp duty: Rent: Variable or uncertain rent: Example 8

Understanding Stamp Duty Calculation for Variable or Uncertain Rent

This article explains how to calculate stamp duty when the lease rent is variable or uncertain. We’ll go through an example step-by-step to illustrate the process.

What is Stamp Duty?

Stamp duty is a tax you pay on certain purchases, including property and land transactions. When you lease a property, the amount of rent can affect how much stamp duty you owe. If the rent is uncertain or varies over time, the calculation can become a bit more complicated.

Key Elements of the Example

To understand how to calculate stamp duty for a lease with variable rent, let’s look at an example:

• The lease starts on 1 January 2018 and lasts for seven years.
• Initially, the rent is set at £100,000 per year.
• After four years, there is a market rent review.
• The estimated rent after the review was £125,000, but the actual rent turned out to be £150,000.

Land Transaction Returns Required

For this example, you will need to submit two land transaction returns at different times:

First Return

This return is due by 31 January 2018:

• You will file a land transaction return including the net present value (NPV), calculated using:
• The known rent of £100,000 for the first four years.
• The estimated rent of £125,000 for years five to seven.

Second Return

This return is due by 31 July 2022:

• You will need to submit another land transaction return by sending a letter to Stamp Taxes, which includes:
• The NPV again calculated using £100,000 for the first four years.
• The actual rent of £150,000 for years five to seven.

Reviewing Rent After Five Years

The treatment of uncertain rents should be reconsidered at the end of the fifth term of the lease. This is important even if the actual rent is still not confirmed at that time. For our example, if the market rent was in dispute and the review did not finish until after the statutory five-year period:

• The estimate of rent payable should be assessed at the end of the five-year period and any necessary revisions made. In this case, the new estimated rent is £145,000.
• Since this revised estimate is higher than the previously submitted estimate, an additional return must be filed by 30 January 2023. This should be sent as a letter to Stamp Taxes and must include:
• The NPV calculated using £100,000 for the first four years.
• The revised estimate of £145,000 for years five to seven.

Final Adjustments After Five Years

Once you know the actual rent for all five years, you need to update your return to reflect these real figures. If the amount differs from what was estimated initially, you may need to pay additional tax to avoid penalties. This update should again be submitted as a letter to Stamp Taxes.

Important Dates Summary

To recap the key dates and filings in our example:

• By 31 January 2018: Submit the first land transaction return with the initial rent estimate.
• By 31 July 2022: Submit the second land transaction return with the actual rent after review.
• By 30 January 2023: Provide an additional return with the revised rent estimate if necessary.

Factors to Consider

When working with variable or uncertain rents, remember the following points:

• It’s essential to review the rental amounts at the conclusion of the five-year period.
• Stay informed about the actual rent to ensure your tax obligations are met.
• Keep communicating with Stamp Taxes promptly to avoid penalties.

Conclusion

This example illustrates the process of calculating stamp duty for a lease with uncertain or variable rent. By following the required steps and submitting the necessary returns on time, you can effectively manage your tax obligations regarding property leases.