Stamp Duty Land Tax (SDLT) is often in the news in respect of the residential market for individuals but there is little said about the impact on businesses. Those businesses acquiring property interests, whether residential or non-residential, freehold or leasehold, need to ensure they understand their SDLT liability and filing obligations.
How does SDLT apply to leases?
The SDLT position can be especially complex around leases. Leases are generally subject to SDLT on the premium and also the net present value of the rents over the term of the lease (both including VAT if charged). In many cases this is straightforward but there can be complications where the rent is uncertain (for example there is a rent review in the first 5 years of the lease), there is an agreement for lease, the lease is varied or a lease ends but occupation continues.
Uncertain rent in the first 5 years of a lease requires a business to estimate its rent in the first return and make a further return when the rents become certain. This obligation is often missed.
An agreement for lease, whereby a lease is to be granted in future, may be substantially performed (often by occupation) earlier than the lease is actually granted. This creates a filing obligation for the business at the point of that substantial performance.
If a lease is surrendered in return for the grant of a new lease there can be relief for both the capital value of the leases and also for any overlapping rental periods. Certain criteria must be met to secure these reliefs. Variations to a lease can sometimes lead to a surrender and regrant in general law, which creates chargeable transactions. There may also be payments between the parties to the lease which could be subject to SDLT.
Some businesses may find themselves in remaining occupation of their premises after the lease has expired. This “holding over” period can result in further returns being required on an annual basis, a requirement which is often missed.
What are some of the SDLT reliefs available to businesses?
Businesses may seek to raise finance by undertaking a sale and leaseback arrangement with another party. If this is structured carefully, a relief can be secured on the leaseback element.
Group relief is available for transfers between 75% group members as long as the transfer is for bona fide commercial reasons. Care needs to be taken to ensure the 75% conditions is met and there are no arrangements in place or future events which could deny group relief at the outset, or result in the relief being clawed back at a later date.
If a purchaser is intending to buy a property and then immediately sell all or part of this onto another party, they may be able to take advantage of sub-sale (pre completion transaction) relief. There are detailed rules on the conditions for this relief.
What happens if I get an SDLT return wrong?
Given the complex SDLT rules, failure to seek professional advice increases the risk of making incorrect SDLT returns, or failure to file a return. This can lead to HMRC enquiries or for errors to be picked up on any due diligence of the purchase.
How can I ensure my SDLT return is accurate?
PEM’s specialist SDLT team are on hand to help you understand your SDLT position, identify the required filings and deal with any HMRC enquiries. Please get in touch if you would like to find out more.
