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HMRC SDLT: SDLTM17090 – Miscellaneous Provisions: Lease Assignments: Treated as new lease

SDLTM17090 – Miscellaneous Provisions: Lease Assignments Treated as New Lease

This article explains how certain lease assignments are treated under the Stamp Duty Land Tax (SDLT) rules, particularly in terms of the assignment of leases and which transactions can be considered a grant of a new lease. Understanding these principles can help businesses comply with taxation requirements when dealing with lease assignments.

Understanding Lease Assignments and SDLT

A lease assignment occurs when the original tenant, referred to as the assignor, transfers their lease rights to a third party, known as the assignee. Depending on the circumstances, this assignment may be treated differently for SDLT purposes.

Exempt Leases

When a lease is initially granted, there are specific scenarios in which that lease can be exempt from SDLT. These exemptions include:

• FA03/S57A: Sale and leaseback arrangements
• FA03/SCH7/PART1: Group relief
• FA03/SCH7/PART2: Reconstruction and acquisition relief
• FA03/S66: Transfers involving public bodies
• FA03/SCH8: Charities relief
• FA03/S123(3): Regulations that reproduce the effect of statutes providing for exemption from SDLT
• Paragraphs 6 and 8 of Part 3 of Schedule 61 to the Finance Act 2009: Alternative finance investment bond relief
• Part 1 or 2 of Schedule 7A: PAIF seeding relief and COACS seeding relief

If the original lease falls under any of these exemptions, it will not be charged SDLT at the time of its granting. However, if the lease is assigned later and is not exempt, the assignment can trigger SDLT considerations.

Treatment of Lease Assignments

If a lease that was exempt from SDLT is subsequently assigned, the first assignment that is not exempt will be treated as a new lease granted by the assignor. This treatment is determined under FA03/SCH17A/PARA11.

When a lease assignment is treated as a new grant, the following details are important:

• The deemed grant is considered to have a term equal to the remainder of the original lease.
• The new lease conditions for the assignee will match those of the original lease, such as rent terms and review periods.
• Any capital paid for the assignment will also be subject to SDLT, in addition to the charges from FA03/SCH17A/PARA11.

However, this rule does not apply if certain reliefs are withdrawn before the assignment occurs due to a disqualifying event, such as:

• Group relief
• Reconstruction and acquisition relief
• Charities relief
• PAIF seeding relief
• COACS seeding relief

For further information on these disqualifying events, refer to SDLTM23000 and SDLTM26000.

Initial Grant and SDLT Liability

The rules regarding deemed grants will only apply if the initial grant of the lease was liable for SDLT or would have been liable if no relief had been claimed.

Examples to Illustrate Lease Assignments

Example 1: Assignment After Claiming Group Relief

Consider a scenario where A Ltd grants a 25-year lease to its subsidiary, B Ltd. B Ltd claims group relief on the lease grant. After one year, B Ltd assigns the lease to C Ltd, which is an unrelated company.

• Since the grant of the lease from A Ltd to B Ltd benefited from a relief, the assignment to C Ltd is treated as the grant of a new lease for 24 years, representing the remaining term of the original lease.
• For SDLT notification, this assignment is treated as a new lease granted by B Ltd to C Ltd.
• C Ltd must file a land transaction return and pay SDLT on the net present value of the remaining rent, along with any capital amount paid to B Ltd for the assignment.

Example 2: Assignment Without Previous Relief

Now, consider a different situation where A Ltd grants a lease to B Ltd, which is not connected to A Ltd. B Ltd pays SDLT on the chargeable consideration when acquiring this lease.

• Later, B Ltd assigns the lease to C Ltd.
• Since the initial lease grant from A Ltd to B Ltd did not claim any relief, the assignment from B Ltd to C Ltd is not treated as a new lease.
• However, any capital amount paid by C Ltd to B Ltd for the lease assignment will still be subject to SDLT.

Final Notes on Assignment Transactions

Lease assignments and their SDLT implications can be complex, especially regarding previous relief claims and how they affect subsequent transactions. It is essential for businesses to understand the rules surrounding these transactions to ensure compliance with tax laws. Keeping accurate records of lease assignments and any associated relief claims will facilitate correct tax filings and payments.

If you have further questions about SDLT implications for lease assignments and related transactions, it’s advisable to consult with a tax professional or review resources provided by HMRC.