Read the original guidance here:
HMRC SDLT: SDLTM17040 – Miscellaneous Provisions: Linked leases: Successive: Calculation

Understanding Successive Linked Leases and SDLT Calculations

When dealing with stamp duty land tax (SDLT), it’s important to identify when transactions are linked. According to Finance Act 2003, transactions are classified as ‘linked’ if they are part of:

• A single scheme or arrangement, or
• A series of transactions

These transactions must involve the same parties or parties that are connected in some way. This guidance focuses on a specific type of linked transactions called ‘successive linked leases.’

What Are Successive Linked Leases?

Successive linked leases occur when there are two or more leases that are treated as a connected series. The legislation outlines that these successive linked leases are considered as a single lease for SDLT purposes. This means that instead of calculating SDLT for each lease separately, you treat the entire series as one.

To fully understand how SDLT applies to successive linked leases, see SDLTM17035 for a breakdown of what constitutes successive linked leases.

How is SDLT Calculated for Successive Linked Leases?

The calculation for SDLT is determined according to specific guidelines set out in Finance Act 2003 Schedule 17A Paragraph 5. The core steps in this calculation are:

1. The valuation is done as if the entire series of leases was granted at the same time as the first lease in that series.
2. The term of the single deemed lease is equal to the total duration of all the leases combined.
3. Consideration for the lease reflects the rent that will be paid across all leases in the series.

By following these steps, you essentially treat all the linked leases as one, which simplifies the SDLT calculation process.

What About Non-Rental Consideration?

If there is any non-rental consideration involved in the original lease or any successive linked leases, this is handled differently. Non-rental consideration is addressed under Finance Act 2003 Section 55. For more specific guidance on how SDLT is calculated on premiums, refer to SDLTM11045 and SDLTM13010.

Relief or Exemption Issues

If the original lease qualifies for relief or exemption under certain conditions, this will still apply to the deemed lease created under Finance Act 2003 Schedule 17A Paragraph 5. For instance, if relief is applicable under Finance Act 2003 Section 57A, the same benefits will carry over to the new calculation.

For more details on when the leaseback element of a sale and leaseback transaction is exempt, refer to SDLTM16040.

Examples of Successive Linked Leases

To further clarify these concepts, let’s look at a couple of examples:

Example 1: Residential Property Leases

Suppose a property company enters into a 10-year lease for a commercial building. After five years, they decide to extend the lease for an additional 5 years and then, a year later, sign a new lease for another 10 years on the same property.

• The original lease and the two extensions will be considered as successive linked leases.
• For SDLT calculations, you treat them as if they were one 25-year lease commencing at the start of the original lease.
• The rent for the new combined lease will be the total rent payable over the 25 years.

Example 2: Retail Unit Leases

Imagine a retailer that leases a shop for a term of 7 years. Toward the end of this lease, they negotiate a new lease for another 3 years. Later, they secure a further lease for another 5 years for the same unit.

• Again, this scenario depicts successive linked leases where the total term now spans 15 years.
• The SDLT will be calculated as if they had signed one comprehensive lease for all 15 years, starting from when the initial lease was granted.
• The calculation will consider any rent paid during the entire period as part of the total consideration.

Key Takeaways from SDLT Calculations for Successive Linked Leases

When calculating SDLT for successive linked leases, it’s essential to take a comprehensive view of all related leases. Key points to remember include:

• Combined Lease Analysis: Treat the linked series as a single lease for SDLT purposes.
• Total Duration Matters: The total term spans the whole period of all leases in the series.
• Consideration Calculation: SDLT considers the total rent across all leases in the series.

By understanding these principles and the specific rules surrounding successive linked leases, property transactions can be navigated more effectively, reducing potential errors in SDLT calculation.