Read the original guidance here:
HMRC SDLT: SDLTM50260 – Procedure: Completion following Substantial Performance of agreement for lease

Procedure: Completion Following Substantial Performance of Agreement for Lease

When an agreement for a new lease is substantially performed, this is regarded as the grant of a notional lease, as explained in SDLTM17010. If an actual lease is later granted based on this agreement, there can be additional tax implications that necessitate a further return upon actual completion. This guidance outlines the process and requirements for submitting this further return.

Changes to Filing Rules Post 17 July 2013

As of 17 July 2013, the rules for filing a further return have changed significantly. The following details apply if the actual lease is granted on or after this date:

• The notional lease and the actual lease are treated as one single lease. This combined lease is considered to have been granted on the date of substantial performance.
• The notional lease and the actual lease are treated as linked transactions. If granting the actual lease means that more tax is owed, a further return must be filed. If there is no extra tax to pay, no notification is needed.
• The lessee of the actual lease is responsible for any extra tax that might be due.
• If the notional lease was reported previously, the further return should be submitted within 30 days from the effective date of the actual transaction.
• This further return must be sent as a letter to the Stamp Office and should include the following information:
  • The Unique Taxpayer Reference Number (UTRN) from the original return.
  • The details of the new tax calculation.
  • The appropriate payment for any additional tax that is owed.

What Happens If the Notional Lease Was Not Reported?

If the notional lease wasn’t reported and the granting of the actual lease means that tax is now due, you must deliver an SDLT1 form. This must be done within 14 days from the effective date of the actual transaction.

Leases Granted Before 17 July 2013

If the actual lease was granted prior to 17 July 2013, the following rules apply:

• The grant will be viewed as a separate transaction. However, it is still related to the notional transaction.
• Overlap relief will be applicable in these cases.
• The further return will need to be a new SDLT1 form, rather than a letter, and should be submitted to the Stamp Office.
• If the Net Present Value (NPV) is nil due to overlap relief, no notification will be required.

Understanding Overlap Relief

Overlap relief is a provision that prevents you from being taxed twice on the same property interest. However, it’s important to remember that applying this relief cannot lead to a negative figure. This means that you will not be entitled to a refund if the calculated tax on the grant of the lease is less than what was already paid during the substantial performance.

Key Points to Remember

• When you substantially complete a lease, you are treated as having granted a notional lease.
• If the actual lease is granted after 17 July 2013, treat the notional and actual leases as one. If there is more tax due, submit a further return; if not, no action is needed.
• Ensure to include all required details in your further return if the notional lease was reported.
• If you did not report the notional lease and tax is due with the actual lease grant, serve an SDLT1 form within two weeks.
• For actual leases granted before 17 July 2013, view the grant as separate but linked with overlap relief available.
• Remember that overlapping relief cannot create a negative tax figure—no refunds will be issued in these cases.

For more detailed information on these processes, please refer to the specific guidelines provided on the HMRC website.