Read the original guidance here:
HMRC SDLT: SDLTM50450 – Procedure: Leases that continue after a fixed term – FA03/Sch17A/Para3

Stamp Duty Land Tax Guidance: Leases Continuing After a Fixed Term

This article explains what you need to know about Stamp Duty Land Tax (SDLT) when a lease continues after its fixed term. It outlines the process for notifying HM Revenue and Customs (HMRC) and any additional tax that may be due.

Understanding Lease Continuation and SDLT

When you grant a lease for a specific period, this needs to be reported to HMRC if necessary. If the lease continues beyond this fixed term—either as mentioned in the lease agreement or by law—it is treated as if it has been extended by one additional year. If the lease continues again after that year, it is then treated as having extended by a further two years, and so on.

When to Notify HMRC

You must send a further report to the Stamp Office once the lease surpasses the end of its fixed term. This can be done in two ways, depending on your specific situation:

1. If you reported the original lease using form SDLT1 but did not owe any tax.
2. If you reported the original lease and paid the tax due.
3. If the original lease was not required to be reported because it was below the notification threshold.

What to Do After the Fixed Term Ends

You have 30 days from the end of the fixed term to notify HMRC. The process for each scenario differs:

1. Original Transaction Notified Using SDLT1 but No Tax Due

If the lease continues after the end of its fixed term, you must recalculate the tax based on a lease that is one year longer than the original. You should write a letter to the Stamp Office including:

• Your Unique Taxpayer Reference Number (UTRN) from the original return
• The new tax calculation details
• Your self-assessment of the tax now due
• The payment of any tax within 30 days after the original term has ended

2. Original Transaction Notified and Tax Paid

If the lease continues beyond the original fixed term, you again need to recalculate the tax based on an extension of one additional year. Your letter to the Stamp Office must include:

• Your UTRN from the original return
• The details of the new tax calculation
• Your self-assessment of the tax now due
• The payment of any additional tax based on the new calculation, subtracting what you already paid for the original transaction. This must be done within 30 days of the end of the previous term.

3. Original Transaction Not Notifiable

If you did not have to report the original transaction because it was below the notification threshold, but the lease now continues past the fixed term, it becomes notifiable. In this case, you should fill out form SDLT1 and make the payment. The important points to remember include:

• The effective date of your submission is the date of the initial transaction.
• If you submit the return within 14 days of the continuation of the lease, you won’t face penalties.

Information Required in Your Submission

Regardless of how you notify HMRC, once you have submitted your return, you should send a letter to the Stamp Office containing the following details:

• Your UTRN from the return
• The details of your tax calculation
• Your self-assessment of the tax now due

Key Points to Remember

– A lease that continues after the fixed term can affect your tax obligations.
– You must notify HMRC within specified timeframes to avoid penalties.
– Proper documentation is necessary for reporting any change in your tax situation.

Example Scenarios

Let’s look at some examples to clarify the steps:

Example 1: Lease Closed with No Tax Due

Suppose you initially granted a lease for five years, and there was no tax obligation. If the tenant continues to occupy the property for another year beyond the five-year term, you should:

– Recalculate the tax as if the new lease term is now six years.
– Write to the Stamp Office with the details mentioned above.
– Pay any new tax due.

Example 2: Lease Closed with Tax Paid

If you had previously reported a five-year lease and paid the tax, and the tenant stays on for another year, you will need to:

– Recalculate the tax based on a six-year lease.
– Describe the new calculation and how much additional tax is owed.
– Pay the difference in tax to HMRC.

Example 3: When Original Lease Was Not Notifiable

Let’s say you had a lease for a period that was below the notification threshold, such as three years with a nominal rent. If the tenant continues on past three years, that lease now becomes notifiable. In this case:

– You need to prepare an SDLT1 form and pay the tax.
– Your effective date will be the same as the original lease.
– If you complete this process within two weeks, you won’t incur any penalties.

After Submission Follow-Up

Once you submit your return, it’s recommended to follow up with a confirmation that your submission was successful. Ensure that you keep copies of all communications and documents you send to the Stamp Office.

Keep an eye on deadlines, as failing to submit required notifications could lead to problems with HMRC later on.