HMRC SDLT: SDLTM13245 – Calculation of stamp duty: Rent: Variable or uncertain rent: Example 10
Principles and Concepts of Stamp Duty Calculation
This section of the HMRC internal manual provides guidance on calculating stamp duty for variable or uncertain rent scenarios. It includes Example 10, illustrating the application of these principles.
- Understanding variable or uncertain rent in lease agreements.
- Applying the correct calculation methods for stamp duty.
- Using examples to clarify complex scenarios.
- Ensuring compliance with HMRC regulations.
- Providing detailed instructions for HMRC staff.
Read the original guidance here:
HMRC SDLT: SDLTM13245 – Calculation of stamp duty: Rent: Variable or uncertain rent: Example 10
Understanding Stamp Duty on Variable or Uncertain Rent
This article explains how to calculate stamp duty when you have a lease agreement with rent that is uncertain, specifically when it is based on turnover. The example provided illustrates how estimates are made and adjusted over time. It includes the process for filing returns and claiming any refunds if necessary.
Scenario Overview
Imagine a trader who signs a lease for a period of ten years starting on 1 January 2013. The rent for this lease is determined by either:
- 5% of the business’s turnover
- A fixed amount of £30,000 per year, whichever is greater
It’s important to note that the lease does not include any terms to review how the turnover-based rent is calculated.
Initial Calculation of Rent and Filing Returns
When the lease is granted, a land transaction return must be submitted by 31 January 2013. Since the rent is based on turnover, which can be unpredictable, the tenant needs to estimate the rent for the first five years.
Estimation of Rent
The tenant makes these reasonable estimates based on a business plan that suggests turnover will increase. Below are the estimated rents:
| Year | Estimated Rent |
|---|---|
| Year 1 | £30,000 |
| Year 2 | £30,000 |
| Year 3 | £30,000 |
| Year 4 | £35,000 |
| Year 5 | £35,000 |
From this estimation, the maximum rent over any consecutive twelve-month period is calculated to be £35,000. Since there is a minimum rent of £30,000 per year, we can use this amount to calculate the average annual rent.
Calculating the Net Present Value (NPV)
The Net Present Value (NPV) of the total estimated rent for the first five years amounts to £277,073. The stamp duty land tax (SDLT) owed is:
- £1,270 on the estimated rent
Reviewing Rent After Five Years
By the end of the five years, it is necessary to revisit the rent estimates. A new return must be submitted by 31 January 2018 and sent as written correspondence to Stamp Taxes. Up to this point, the rent can be confirmed for the first four years, but the rent for the fifth year needs estimation.
Agreed Rent Summary
Here are the agreed rents for the first four years:
| Year | Agreed Rent |
|---|---|
| Year 1 | £30,000 |
| Year 2 | £32,000 |
| Year 3 | £30,000 |
| Year 4 | £38,000 |
For year five, a new estimated rent of £42,000 is made. Thus, the highest rent in any twelve-month stretch is now estimated to be £42,000.
Revised NPV Calculation
With these new estimates, the NPV for the rent recalculates to £293,142. The SDLT owed now is:
- £1,431 based on the revised rent
This results in an additional tax amount of £161 that needs to be paid.
Final Determination of Rent for the Fifth Year
The rent for the fifth year is officially set on 1 June 2018 and amounts to £40,000. This leads to a new revised NPV of £289,831. The SDLT is now calculated as:
- £1,398 based on the established rent
At this stage, a refund of £33 can be claimed. Since a refund is applicable, there is no need to file an additional return. To claim the refund, an amended return must be submitted as a written request to the Stamp Office.
Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM13245 – Calculation of stamp duty: Rent: Variable or uncertain rent: Example 10
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