HMRC SDLT: SDLTM18205 – Notification: Grant of a lease

Principles and Concepts of Lease Notification

This section of the HMRC internal manual provides guidance on the notification process for the grant of a lease. It outlines the necessary steps and considerations involved in notifying HMRC about a lease grant.

• Details the notification requirements for lease grants.
• Explains the legal obligations involved in the process.
• Provides information on the timeline for submitting notifications.
• Clarifies the roles and responsibilities of involved parties.

Notification: Grant of a Lease

The HMRC provides specific guidelines for dealing with the notification of lease grants under Stamp Duty Land Tax (SDLT). Understanding these guidelines is important for landlords and tenants alike. This article explains what you need to know when a lease is granted, including conditions, circumstances, and examples.

What is a Lease?

A lease is a legal agreement where one party (the tenant) is allowed to use property owned by another party (the landlord) for a certain period, in exchange for rent. Leases can be short-term, like a typical residential rental agreement, or long-term, like a commercial lease that lasts several years.

When is Notification Required?

If you are granted a lease, you are generally required to notify HMRC about the lease for tax purposes, particularly if the lease falls under SDLT rules.

• The requirement for notification exists when the lease has a term of over 7 years.
• For leases under 7 years, your responsibility for notifying hmrc will depend on any chargeable amount of SDLT.

Key SDLT Concepts

To understand the notification process, it’s vital to grasp a few fundamental SDLT concepts:

• Chargeable Consideration: This is the total amount paid or payable for the lease, including any premiums, rent, or other amounts involved.
• Lease Term: This refers to the length of time that the lease is in effect. A lease can be for a fixed term or a periodic one.
• Rent Review: Many leases include provisions for rent to be reviewed at certain intervals, which can influence SDLT calculations.
• Substantial Premium: If you pay a premium for the lease, this may add to your total chargeable consideration.

Basic Steps for Notification

Here are the straightforward steps you need to follow when notifying HMRC about a lease grant:

1. Determine if Notification is Required: First, check the length of your lease and the total chargeable consideration.
2. Calculate the SDLT: If your lease exceeds 7 years or has a chargeable amount, calculate the SDLT you owe.
3. Fill Out the SDLT Return: Complete the required SDLT return form accurately.
4. Submit the Return: Ensure you submit it to HMRC within 14 days of the lease’s grant to avoid penalties.
5. Pay the SDLT: Make the necessary payment according to the calculations provided in your return.

Detailed Notification Process

Each step in the notification process involves specific actions:

1. Checking the Lease Duration:
   • Examine the lease agreement to determine how long the lease will last.
   • If the lease runs longer than 7 years, you have to notify HMRC.
   • If it’s shorter but involves chargeable consideration, you may also need to notify HMRC.
2. Calculating SDLT:
   • Use HMRC’s online calculator or tables to assist in determining the appropriate SDLT. The chargeable consideration may include:
   • Any upfront payments or premiums paid at the start.
   • Ongoing rent, particularly if it’s due in the first year.
   • Any adjustments made during the lease term, like rent reviews.
3. Filling Out the Return:
   • Your SDLT return must include:
   • The full details of the lease, including dates and terms.
   • A breakdown of the chargeable consideration.
4. Submitting the Return:
   • You can submit your return online or through paper forms.
   • Always keep a copy of your submission and any receipts from HMRC for future reference.
5. Making Payment:
   • Follow the payment instructions provided once your return is submitted.
   • Payments can usually be made online, by bank transfer, or via post. Make sure to pay within 14 days of the lease grant to avoid additional charges.

Penalties for Non-Notification

If you do not notify HMRC when required, you could face significant penalties:

• Late Notification Penalties: These can start at 5% of the tax that should have been paid for late submissions. If the delay continues, the percentage may increase.
• Interest Charges: You may also incur interest on unpaid SDLT from the due date until the amount is fully paid.

Special Circumstances

Some circumstances might change how you approach notification:

• Lease Modifications: If you modify an existing lease significantly, it might trigger a new SDLT liability.
• Assignments and Subleases: If you assign or sublet your lease, both you and the new tenant need to be mindful of SDLT requirements.
• Surrender and Regrant: If a lease is surrendered and a new one is regranted, notification is still necessary.

Examples

Here are some examples to clarify SDLT and notification rules:

• Example 1: John grants a 10-year lease of retail space with an annual rent of £15,000 and an upfront premium of £5,000. John must notify HMRC since the lease term exceeds seven years, and he needs to calculate SDLT on the total chargeable consideration.
• Example 2: Sarah signs a 5-year lease for an office at £12,000 per year, but there is no premium. Since the lease duration is less than 7 years and there’s no chargeable consideration, Sarah does not need to notify HMRC.
• Example 3: Mark has a 15-year lease for a warehouse but decides to make changes to the lease terms after 5 years. Since the changes may significantly alter the chargeable consideration, Mark may need to give notice to HMRC regarding these alterations.

Further Resources

For more detailed information, visit the HMRC website or consult the specific SDLT guidelines related to lease grants:

• SDLTM0000: General SDLT guidance
• SDLTM18205: Notification: Grant of a lease

Follow these guidelines to fulfill your obligations when granting or receiving a lease. Understanding the notification requirements and the SDLT process can help prevent

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM18205 – Notification: Grant of a lease

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