HMRC SDLT: Example of Overlap Relief Calculation for Lease Agreements with Different Terms

Understanding Overlap Relief in Lease Agreements

This example illustrates how overlap relief applies when an old lease is surrendered, and a new lease is granted. It focuses on the calculation of net present value (NPV) for stamp duty land tax (SDLT) purposes, particularly when the new lease has a different rent structure from the old lease.

  • The original lease, starting on 1 April 2004, was for 25 years with an annual rent of £144,000, expiring on 31 March 2029.
  • The NPV of the old lease was calculated at £2,373,337, with an SDLT of £22,233 payable on the rent.
  • A new lease was granted on 1 October 2018 for 150 years, with an annual rent of £110,000.
  • The overlap period between the old and new leases is from 1 October 2018 to 31 March 2029, lasting ten years and six months.
  • For the NPV calculation, rent is set to £0 for the first 10 years due to the overlap, £55,000 for year 11, and £110,000 for years 12 to 150.
  • The calculation must be done manually as standard calculators cannot handle this specific overlap relief scenario.

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SDLTM16025 – Reliefs and Exemptions: Overlap Relief: Example 3

This example explains how overlap relief works for stamp duty land tax (SDLT) when replacing an old lease with a new one. Overlap relief can help reduce SDLT when there are two leases in place at the same time.

Details of the Old Lease

– Grant Date: The old lease was granted on 1 April 2004.
– Duration: It lasts for 25 years, which means it will expire on 31 March 2029.
– Annual Rent: The rent due for this lease is £144,000.
– Net Present Value (NPV): The NPV of the old lease amounts to £2,373,337.
– Stamp Duty Land Tax (SDLT) Due: SDLT of £22,233 is payable based on this lease.

Details of the New Lease

– Surrendering the Old Lease: The old lease is surrendered, and a new lease is granted on 1 October 2018.
– Duration of New Lease: This new lease is for 150 years.
– Annual Rent: The rent for the new lease is £110,000.

Overlap Period

– Dates: The overlap period starts on 1 October 2018 and ends on 31 March 2029. This is a total of 10 years and 6 months.
– Rent Comparison: During this overlap period, the rent payable is compared between the new lease (£110,000) and the old lease (£144,000).

Calculating NPV for Overlap Relief

Key Point: The new lease does not have variable rent, which simplifies the NPV calculation.

– Years 1 to 10 of the Overlap: For these years, the rent is £0 in the calculation. This is because:
– The old lease rent (£144,000) is higher than the new lease rent (£110,000).
– The calculation will not go below £0, so the figure to use is £0 for each of these years.

– Year 11: Here, the rent is calculated based on a monthly comparison due to the overlap:
– The first six months will still show a higher old rent than the new rent, so the figure for these months will again be £0.
– In the last six months of this year, the rent under the new lease will be £55,000. This is calculated from:
– Old rent for the first half of the year (which does not apply) = £0.
– New rent for the last half = £55,000.
– Thus, for Year 11, you add these figures to get a total rent of £55,000 for the whole year.

– Years 12 to 150 of the New Lease: For these years, you will use the full rent of £110,000 as there is no overlap to consider anymore.

Manual Calculation Required

Important Alert: The online calculator provided will not be suitable for this NPV calculation. Therefore, it is necessary to perform this calculation manually to ensure accuracy in the SDLT that will be due.

Summary of Key Calculations

– Years 1-10: Rent included = £0 each year.
– Year 11: Rent included = £55,000.
– Years 12-150: Rent included = £110,000 each year.

This breakdown helps illustrate how to apply overlap relief in the context of SDLT while transitioning from an old lease to a new lease. Understanding these calculations ensures compliance and accuracy in the SDLT owed.

For further details or related queries, refer to the relevant sections and resources provided by HMRC.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: Example of Overlap Relief Calculation for Lease Agreements with Different Terms

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Written by Land Tax Expert Nick Garner.
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