HMRC SDLT: SDLTM50550 – Procedure: Lease for indefinite term – FA03/Sch17A/Para4

Procedure: Lease for Indefinite Term

This section of the HMRC internal manual provides guidance on handling leases for indefinite terms under FA03/Sch17A/Para4. It outlines the principles and concepts necessary for understanding and applying the relevant tax regulations.

• Explains the legal framework for leases without a fixed term.
• Details the implications for Stamp Duty Land Tax (SDLT).
• Provides procedural guidance for HMRC staff.
• Includes references to applicable legislation and case law.

Understanding the Taxation of Indefinite Term Leases

When a lease is granted for an indefinite term, it is treated differently for tax purposes compared to a fixed-term lease. This article explains how the taxation works under these circumstances, detailing the procedures that need to be followed when the lease continues beyond particular time frames.

Basics of Taxation for Indefinite Term Leases

If a lease is granted for an indefinite term, it is initially taxed as if it were a lease for a fixed term of one year. If the lease continues beyond the first year, the tax will then be recalibrated to reflect that it now extends to two years, and this process continues for each subsequent year of the lease.

Situations Regarding Original Transactions

When dealing with indefinite term leases, various scenarios may occur that will affect how you report and pay tax on the lease. The following sections will outline these scenarios and the correct procedures for each.

Scenario 1: No Tax Due on the Original Transaction

– The original transaction was reported on the SDLT1 form, but no tax was owed.
– If the lease persists beyond the first year, a new report must be filed.

What to do:
– Recalculate the tax based on the assumption that the lease is now for two years.
– Prepare and send a letter to the Stamp Office that includes:
– Your Unique Transaction Reference Number (UTRN) from the original return.
– A detailed breakdown of the new tax calculation.
– A self-assessment of the tax currently owed.
– Payment of any tax owed within 30 days from the end of the previously notified term.

Scenario 2: Tax Paid on the Original Transaction

– In this case, the original transaction was reported and tax was paid.
– If the lease continues beyond the term specified in the original transaction, you will need to file a further report.

What to do:
– Recalculate the tax to reflect that the lease continues for one additional year (i.e., from one year longer than originally reported).
– Send a letter to the Stamp Office with:
– Your UTRN from the original return.
– A detailed new tax calculation.
– A self-assessment of any extra tax now due.
– Payment of the additional tax within 30 days after the end of the term that was originally reported.

Scenario 3: Original Transaction Not Notifiable

In this scenario, the original transaction did not require notification because it was below the required notification threshold.

– If the lease continues beyond the first year, it may now become notifiable.

What to do:
1. Since the lease has now become notifiable, you must file an SDLT1 form.
2. The effective date for this required reporting is the original date of the lease grant.
3. As a new requirement, you must send the SDLT1 to the Stamp Office, along with a letter containing:
– A new tax calculation.
– A self-assessment of the tax that is currently due.
– Payment of any tax that is now owed within 30 days following the end of the term that did not previously require notification.

Important note:
– Effective from 1 March 2019, if the lease becomes notifiable for the first time because it has continued, you must submit the return and make the tax payment within 14 days following the end of the latest continuation period.

Key Points to Remember

– The lease for an indefinite term is initially considered to be for one year for taxation purposes.
– If the lease continues, you must recalculate the tax according to how long the lease has been extended.
– Submissions to the Stamp Office must include specific details relevant to your situation.
– Timeliness is critical; submissions and payments need to be made within prescribed timeframes to avoid penalties.

By following the necessary steps according to each scenario, you can ensure compliance with the regulations set forth by HMRC regarding indefinite term leases.

Useful article? You may find it helpful to read the original guidance here: HMRC SDLT: SDLTM50550 – Procedure: Lease for indefinite term – FA03/Sch17A/Para4

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