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Stamp Duty on Leased Property
Stamp duty on leased property
Introduction
This article will be useful for anyone with queries about Stamp Duty Land Tax and especially for those queries concerning leases. Net Lawman has a more general article on Stamp Duty Land tax which you can find here.

The latest Stamp Duty Land Tax (SDLT) system for leases has produced results dramatically different from those of the previous Stamp Duty regime. The results have created an increase in the charge eight fold in some circumstances. However, there is no significant change to the method of calculating SDLT on rents.

Does a difference exist between the Stamp Duty payable on a new lease and the purchase of an existing lease?

Yes. If you are purchasing an existing lease (known as an assignment) the stamp duty payable is the same as if you are purchasing a freehold property.
 
How is Stamp Duty calculated on new leases?
The amount of Stamp duty payable on new leases and agreements depends on;
  • the premium which is the capital
  • the average annual rent
If duty is payable under both the heads, the duty will be calculated separately on each of these two elements and the two amounts will then be added together. The total is then rounded up to the next £5.
 

Type of Land
Relevant Rental Value
Rate
Residential
0 – £60,000
 more than £60,000
0%
1%
Non-residential or mixed
0 – £150,000
        more than £150,000
0%
1%

If the premium in your lease is £60,000 or less and the rent is £600 or less a year, there is no duty payable, provided that the lease contains a certificate of value for £60,000.  

How much do I need to pay on the rent?
The rent varies with the varying of the length of the term.

Length of Term                                                   Rate of Duty
7 years or less or indefinite                                             1%
More than 7 years but not more than 35 years                  2%
More than 35 years but not more than 100 years              12%
Over 100 years                                                              24% 

Break clauses and renewal clauses are disregarded for the purposes of defining the term 

Is there a difference between commercial and domestic leases?

 

Both commercial and domestic leases attract duty in the same way and the amount you pay depends on the:
  • term;
  • rent;
  • premium.

However, since 1989 VAT has been chargeable on commercial property. This means that a landlord who is registered for VAT can be charged, when granting a lease of commercial or business premises.

Is VAT always taken into account when calculating the amount of stamp duty?
No. For VAT to be taken into account it should be mentioned in the terms of the lease itself and the landlord should be registered too. If the Landlord has elected to charge VAT at the date of the lease, stamp duty will be charged on the stamp duty inclusive of premium. VAT inclusive rent is always charged unless the lease specifically states that the landlord is not entitled to charge VAT. If there exists a provision in the lease whereby the tenant is not liable for any VAT, the landlord may charge VAT as long as there is no clause or term within the lease preventing them from doing so. The sum on which stamp duty is charged will therefore include VAT at the prevailing rate.

Should the lease state whether VAT is included in the purchase price?
In order to charge the correct amount of stamp duty we need to know whether the premium and rent includes VAT. If it is not clear from the terms of the lease whether VAT is included you will need to let us have other documentary evidence which tells us exactly what the position is.

If there is no agreement for lease then the lease will have to contain a statement which certifies that it has been executed without there having been an agreement, such as: "I/We certify that there is no agreement for lease to which this lease gives effect".

After the execution of a lease, can the certificate be added?
If a necessary certificate was originally left out of the lease it should be added to the document. It should also be signed by the parties. 

A circumstance that negates the above will not be accepted namely:
  • a completely separate certificate will not be accepted;
  • a certificate without the sign of the parties.
What is the effect if there is a difference in the terms of the lease and that of the agreement?

If there is a slight variation, the new tax is calculated and the variance is also included. If the difference is large, the amount is stamped onto the lease. If there is substantial difference of the terms in the lease from that of the agreement, the general consideration is that a fresh lease shall be made and no consideration of the duty that has earlier been paid will be taken.

If the recalculation results in less duty, it does not have to be re-paid, whereas any additional amount will be stamped on the lease.

When should it be paid?
You should get your agreement stamped within thirty days of the date of execution. If you present your lease late you will have to pay extra cash as a penalty, as well as interest. In the case of leases with a prior agreement, the lease date is the effective date in working out any penalty or interest.

Who is supposed to pay the duty?
The lessee (the person taking on the lease) is usually the person who has to pay the stamp duty. In some cases, solicitors or other agents are often engaged by the lessee to take part in the deal. In this situation, the agent will pay it to the Stamp Office on the lessee’s behalf.

What are ‘Counterpart Leases’? 
Out of the two copies of a lease the one that is signed by the tenant is called the counterpart lease. It is stamped with a fixed duty of £5. If the landlord and the tenant sign both copies, one would attract full duty and the other a fixed duty of £5 as a duplicate. If there is no duty payable on the original lease, there will be no duty payable on the counterpart or duplicate. 

Do Any Forms Need To Be Completed?
Yes.

Forms L(A)451 and Stamps 61.  

For leases over 7 years,

  • form L(A)451 (PD1 in Northern Ireland) needs to be completed
  • with particular details of the property
  • the agreement for lease or lease.
The form Stamps 61 is an application for stamping form which should accompany the documents and duty sent to the Stamp Office. This form helps to ensure that your documents are dealt with speedily.

These forms can obtained free of charge from any Stamp Office. The form PD1 for Northern Ireland is available from Belfast Stamp Office.

Where is the stamping done?
Documents for stamping should be taken or sent to any of the following Stamp Offices.

Belfast Stamp Office
Ground Floor
Dorchester House
52-58 Great Victoria Street
Belfast BT2 7QE
028 90 505127
DX: 2003 Belfast 2
Birmingham Stamp Office
5th Floor
Norfolk House
Smallbrook Queensway
Birmingham B5 4LA
0121 633 3313
DX: 15001 Birmingham 1
Bristol Stamp Office
The Pithay
All Saints Street
Bristol BS1 2NY
0117 927 2022
DX 7899 Bristol 1
Edinburgh Stamp Office
Grayfield House, Spur X,
5 Bankhead Avenue
Edinburgh EH11 4AE
0131 442 3161DX: ED 543303 Edinburgh 33
DX mail for Edinburgh should be marked with a blue cross on both sides of the envelope.
London Stamp Office
Personal callers only
South West Wing
Bush House
Strand
London WC2B 4QN
020 7 438 7252/7452
Worthing Stamp Office
Postal applications only
Room 35
East Block
Barrington Road
Worthing BN12 4XJ
01903 508962
DX: 3799 Worthing 1
Manchester Stamp Office
Upper 5th Floor
Royal Exchange
Exchange Street
Manchester M2 7EB
0161 834 8020
DX: 14430 Manchester 2
Newcastle Stamp Office
4th Floor
Weardale House
Washington
Tyne & Wear
NE37 1LW

DX 61021 Newcastle-Upon-Tyne

Tel: 0191 261 1199
Fax: 0191 201 7392

 
Net Lawman advice
Since the technical rules on SDLT are complex, Net Lawman advises you seek professional help before entering into lease or purchase of land.
 
Net Lawman document templates:

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