SDLT and holding over

Published: 14th July 2008

It is the fifth anniversary of the implementation of stamp duty land tax (SDLT) on 1 December 2008 and many short term leases granted under the SDLT regime will be coming up for renewal. Tenants should be aware that if they remain in occupation of their property while a renewal lease is being negotiated there may be additional SDLT due.

If a tenant continues to pay rent they will be holding over and a one-year lease is deemed to be granted. The tenant will have to recalculate the Net Present Value (NPV) of the lease for its extended term (i.e. the original term plus one year).

In situations where an SDLT return was originally filed because the NPV exceeded the nil rate threshold then SDLT must be paid on the difference between the two NPV calculations within 30 days of the start of the period of holding over. If no SDLT return was submitted because the NPV was less than the nil rate threshold, and the addition of an increase in the length of the term means that the transaction is now notifiable, the tenant must submit a full SDLT return and tax will be payable on the NPV above the threshold.

Where a tenant remains in occupation but does not pay any rent the period of holding-over is treated as a tenancy at will, which is exempt from SDLT because there is no deemed lease. However, if a tenant starts paying rent at regular intervals a periodic tenancy could arise and would be treated as a lease for SDLT purposes.

Provided that the term commencement date of the renewal lease is backdated to the end of the contractual term of the original lease (and the other statutory criteria are fulfilled) then overlap relief can be claimed for the SDLT paid in respect of the holding-over period when paying SDLT on the renewal lease.