This document discusses several SDLT (Stamp Duty Land Tax) issues related to commercial leases, including: 1) Holding over can trigger additional SDLT payments if the original lease was granted after 2003, with different rules depending on when the holdover period began. Overlap relief may be available when a new lease is granted. 2) Surrenders and re-grants of leases may qualify for overlap relief to avoid double taxation, provided it is to the same or substantially similar premises between the same parties. 3) Turnover rents, where rent amounts are uncertain, require estimating anticipated rent for the first 5 years and paying SDLT on that estimate, with potential additional payments later based on

1. TLT LLPTLT LLPTLT LLP
SDLT and lease
renewals
TLT Annual Commercial Leases Seminar 2015

2. TLT LLP
Introduction
• SDLT consequences of holding over and lease renewals
• Surrender and re-grants
• Taxing turnover rents

3. TLT LLP
Leases and SDLT
• SDLT charged on rent and premiums
• Net Present Value (NPV) calculated by reference to the
rent payable over term of lease
• NPV formula is Rent/(1.035)
• SDLT calculated on NPV
• SDLT leases calculator on HMRC website
• Don’t forget VAT on the rent!
• NB Land and Buildings Transaction Tax (LBTT) in Scotland

4. TLT LLP
Holding over - What is the concern?
• SDLT implications for a tenant on the holding over and
renewal of a commercial property lease
• Tax compliance issues and additional SDLT to be paid –
a tax return like any other so penalties for failure to
submit on time
• Can be a procedural headache – eg retailer with multiple
leases, particularly if renewing at the same time
• Reputational issues if SDLT requirements ignored
• What happens in practice? May go under the radar…..

5. TLT LLP
What is "holding over"?
• Fixed term of lease expired
• Tenant remains in occupation
• SDLT rules complex and seek to tax the hold over period
• Questions that need to be answered:
• Was original lease subject to stamp duty not SDLT –
i.e. was it granted prior to 1 December 2003?
• When did the lease terminate and holding over
commence - was it before 17 July 2013?
• SDLT treatment is different depending upon the
answers…

6. TLT LLP
Holding over of lease granted before 1 December
2003
• Stamp duty lease as granted before 1 December 2003 ie
terms not varied during holding over period
• No further stamp duty/SDLT implications for holding over
• May be SDLT consequences for the tenant if other
variations occur in hold over period (such as rent
increases)
• Tenant to submit SDLT return/pay SDLT on renewal
lease within 30 days of effective date
• Effect: tax free holding over period for tenant (provided
no deviation from terms of original lease)

7. TLT LLP
Holding over on leases granted on or after 1
December 2003
• Tenant holding over is treated as an extension of the
original lease initially by one year (a growing lease)
• Recalculate NPV for every year of hold over
• Timing of SDLT compliance depends on when holdover
period starts.
• Is it before or after 17 July 2013?
• Don't forget that further SDLT is due on the grant of the
renewal lease.
• Maybe overlap relief
• How do you manage this process?

8. TLT LLP
Overlap relief
• Relief from SDLT where:
• Tenant is granted a new lease of the same or
substantially the same premises;
• Term of renewal lease is backdated to original lease
termination date
• Rent payable under the renewal lease for overlap period
is reduced by amount of taxable rent payable during
holdover
• Manual calculation
• May have issues if demised area changes

9. TLT LLP
Case Study
• Eight year lease granted on 19 January 2005 (subject to
SDLT) expiring on 18 January 2013
• Tenant holding over from 19 January 2013
• SDLT payable on additional year of rent and due to
HMRC by 17 February 2013
• Tenant holding over from 19 January 2014
• SDLT payable on additional year of rent and due to
HMRC by 17 February 2015

10. TLT LLP
Case Study
• Lease renewal is completed on 2 March 2015 but the
term commencement date is 19 January 2013 (ie lease
renewal is backdated)
• SDLT treatment of renewal lease:
• Calculate the NPV of full term (backdated to 19
January 2013)
• Deduct the NPV of the two hold over periods (since
this has already been taxed)
• SDLT due on 'net' NPV
• Tenant must submit SDLT return within 30 days of the
grant of the renewal lease

11. TLT LLP
Case Study - Timeline
19 Jan 2005
Lease granted
18 Jan 2013
Termination date
(19 Jan 2014)
(19 Jan 2015)
2 March 2015
New lease
granted
(backdated to
19 Jan 2013)
1st
year of holdover 2nd
year of
holdover
SDLT paid on NPV of lease SDLT due &
SDLT return by
17 Feb 2015
SDLT due &
SDLT return by
17 Feb 2013
SDLT return & SDLT due
on new lease by 31
March 2015
(overlap relief claimed)

12. TLT LLP
Surrenders and re-grants (1)
• Surrenders and re-grants at law (increase demise,
extend term, fundamental variations)
• New lease subject to SDLT in the usual way
• But SDLT overlap relief potentially available:
• Surrender and re-grant between same parties
• Re-grant over 'same or substantially the same'
premises
• Relief for the rent payable under the old lease for the
overlap period (and which has already been taxed)
• Relief not claimed but obtained by reducing NPV of
new lease (but not if stamp duty lease)

13. TLT LLP
Surrenders and re-grants (2)
• Practical issues:
• Same demise?
• Separate lease of extended demise?
• Same parties?
• Planning tip – surrender by Company A and re-grant
to Company B – no overlap relief so assign lease and
claim group relief?

14. TLT LLP
SDLT and turnover rents
• Uncertain or unascertainable rents dependent on e.g.
trading profit, sales or energy generation
• Common in retail, leisure, aggregates and energy
sectors
• Have top calculate reasonable estimate of anticipated
rent for first 5 years of the lease
• SDLT paid on estimate

15. TLT LLP
SDLT and turnover rents
• What is 'reasonable'? No need for formal valuation but
look to business plan, financial forecasts etc
• Compliance issues:
• Retain evidence of basis of estimate
• Review of actual rents paid and pay additional SDLT
• Additional SDLT return to HMRC
• When to review?
• When rent is ascertained or
• End of 5th
year of lease (at the latest)