| Press release
15th August 2008
The SDLT Consequences of Holding Over
It is not unusual for tenants of commercial premises to remain in occupation when their lease expires whilst a new one is being negotiated, however what many tenants do not realise is that during this ‘holding over’ period, they may be incurring a liability to pay Stamp Duty Land Tax (SDLT).
If the lease was originally entered into on or after 1 December 2003 and the tenant starts holding over, that period is then deemed to be a one year extension to the lease for the purposes of SDLT. This means that the tenant needs to recalculate SDLT that is payable in relation to the lease as soon as that holding over period begins. The calculation will involve taking into account any premium paid at the start of the lease and the rent payable during the original term, so there will not always be a further SDLT liability.
Another point is that if a tenant continues to hold over beyond one year after the contractual lease term ends, yet another one year extension is implied for SDLT purposes and once again, the tenant will need to recalculate the amount due.
In the event that the recalculation does give rise to a further SDLT liability, HM Revenue and Customs must be notified within 30 days of the date when the holding over period begins. This is important to remember; that time runs from the first day the tenant remains in occupation following the expiry of the lease. Likewise, if the holding over period runs into a second or third year, in each case should further SDLT be payable, HMRC must be notified within 30 days of the beginning of each of the second year, or third year etc.
When a new lease is then agreed with the landlord, it will generally commence on the day after the original lease expired and SDLT will need to be calculated on the new lease. If for example the tenant has been holding over for a year when the new lease is then entered into, SDLT will have been payable in respect of that one year holding over period and also the first year of the new lease, so there would potentially be a double charge to SDLT. If however the tenant has already paid SDLT in relation to that holding over period, this amount can be deducted from the SDLT due in respect of the renewal lease. It should be noted though that if the renewal lease, say due to a premium being payable or a rent increase, causes the SDLT chargeable in respect of that holding over period to increase then any such additional amount will need to be paid.
Since December this year marks five years from the new SDLT regime coming into force and the last few years have seen the granting of many five year leases, this is going to be an issue pertinent to a considerable number of business tenants who could end up holding over whilst a new tenancy is being negotiated.
For further information please contact Tomasz Dukanovich at Bright solicitors on 01752 764848 or tomasz.dukanovich@brightllp.co.uk
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