HMRC SDLT: Example of Stamp Duty Calculation for Lease with Variable Turnover-Based Rent

Stamp Duty Calculation for Variable Rent Lease

This example illustrates the calculation of Stamp Duty Land Tax (SDLT) for a lease with variable rent based on turnover. The lease is for ten years, starting 1 January 2013, with rent being the higher of 5% of turnover or £30,000. The tenant must estimate rents for the first five years and adjust these estimates as actual figures become available.

  • The lease requires a land transaction return by 31 January 2013 due to uncertain rent based on turnover.
  • Initial rent estimates for the first five years were £30,000 for the first three years and £35,000 for the next two years.
  • The highest rent for any twelve-month period was initially calculated as £35,000, with a minimum annual rent of £30,000.
  • After five years, the actual rents were £30,000, £32,000, £30,000, and £38,000, with a revised estimate of £42,000 for the fifth year.
  • The revised net present value (NPV) of rent was £293,142, resulting in an SDLT of £1,431, with an additional tax of £161 due.
  • Upon determining the fifth year’s rent as £40,000, the NPV was adjusted to £289,831, allowing a refund of £33, which can be claimed via an amended return.

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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:

YearEstimated 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:

YearAgreed 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: Example of Stamp Duty Calculation for Lease with Variable Turnover-Based Rent

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