1 December 2008 sees the fifth anniversary of the introduction of the Stamp Duty Land Tax ("SDLT") regime. Why does this matter? The answer for many is that it will not, but there may in particular be consequences for tenants when it comes to rent reviews and for tenants with turnover rent leases granted under the SDLT regime.
Turnover rents
In the case of turnover rents, the original SDLT return will have been submitted on the basis of estimated turnover, and therefore estimated rent, during the first five years of the term. The rent payable was uncertain when the lease was granted but once the rent becomes certain, the tenant is obliged to submit a further SDLT return. The Revenue have clarified that in the case of turnover rents, the obligation arises at the end of the fifth year of the term. The tenant will need to recalculate the SDLT payable based on the actual rent paid during the first five years and, if more SDLT is due, submit a further return and pay the additional tax. Any further return and additional payment must be made within 30 days of the end of the five year period. If a tenant has over-estimated turnover and the rent payable so has paid too much SDLT, it may claim a rebate from the Revenue.
Tenants under turnover rent leases should therefore start collating rent and turnover data in advance to ensure that the 30 day time limit can be met. Failure to do so will result in penalties and possibly interest being charged by the Revenue.
Rent reviews
Generally, rent reviews after the first five years of a lease term are not taken into account for SDLT purposes. However, if any rent increase after a review is regarded as "abnormal" a tenant will have to pay further SDLT on the basis of the increased rent for the remainder of the lease term. An annual rent increase of over 20% year on year is deemed to be "abnormal", therefore, most commercial rent reviews will not be "abnormal". For example, rent would need to double before the increase would be "abnormal" under a lease with a five year review pattern.
In summary, tenants, should be aware of these possible SDLT consequences and should think about doing some housekeeping now to be prepared for any future SDLT liabilities.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
