Question of liability to Stamp Duty Land Tax

Jul 8 2008 by The Journal

MOST tenants of business premises realise that on the grant of a lease they will need to consider Stamp Duty Land Tax (SDLT), which was introduced with effect from December 1, 2003, in place of Stamp Duty.

They will usually have taken advice on the lease and their lawyer will advise on whether any SDLT is payable or not.

However, what about where the tenant continues to occupy after the end of the contractual lease term?

Where a lease has been contracted out of the security of tenure protections of the Landlord and Tenant Act 1954, there will be no automatic continuation of the lease under statute.

If the tenant remains in occupation then that is most likely as a tenant at will and is not subject to SDLT.

If the original lease was not contracted out such that there is a statutory continuation, then whether the original lease was a Stamp Duty lease (broadly speaking, it predated December 1, 2003) or was a later, SDLT lease, is relevant. In the former case, the rent which the tenant pays during the continuation is classified as being paid under the old Lease and no SDLT is payable.

By contrast, where the tenant continues to occupy following expiry of an SDLT lease then any period of holding over counts as an extension of the original lease term.

The tenant must be aware that its lease will be deemed to have extended for a further year, irrespective of how long the tenant actually holds over.

The further calculation as to whether or not any SDLT is due is based upon the original term of the lease plus one year.

This exercise must be repeated for every year that the tenant holds over, until any new lease is completed.

SDLT is a self-assessment tax and the onus is on the tenant to observe the rules – failure to do so will result in the tenant having to pay interest and penalties to HMRC on top of the SDLT due.

Malcolm Wood, is a director in the Commercial Property Department at Dickinson Dees LLP