SDLT Payments: Impact of VAT increases
Impact of VAT Increase on SDLT and leases
On 4 January 2011, the standard rate of VAT will increase from
17.5% to 20%. HM Revenue & Customs has issued guidance on the
impact that the increase will have on stamp duty land tax (SDLT) on
non-residential leases. This e-mail summarises the key points from
SDLT on non-residential leases
The amount of SDLT chargeable on the grant of a lease over
non-residential property is based on the net present value (NPV) of
rent. For SDLT purposes, the NPV of rent means the rent payable
over the entire term, and includes any standard rate VAT which is
due on rent because the landlord has opted to tax the property
before the grant of the lease. If the landlord makes an option to
tax after the grant of the lease, the VAT is not included in the
For leases where the rent is variable or uncertain, the NPV
still must be calculated for the whole term. This is done by making
a reasonable estimate of the rent payable for each of the first
five years of the term, and using those figures for years one to
five of the NPV calculation. The highest annual amount payable, or
estimated, for any of those first five years is taken to be the
annual rent for each year of the rest of the term.
There is usually a requirement to review the NPV calculation at
the earlier of:
- The end of the fifth year of the term of the lease.
- The date when the rent payable in the first five years can be
If, on that review, the SDLT is greater than previously
returned, then a revised return should be made within 30 days of
the review date.
HM Revenue & Customs guidance on the
VAT leases granted on or after 27 July 2010: new VAT
The NPV for a VAT lease with an effective date falling on or
after 27 July 2010 should take account of the January 2011 increase
in the standard rate of VAT. Therefore, typically, the NPV
calculation will include:
- VAT at 17.5% for rents due on the September and December 2010
- VAT at 20% for rents due on subsequent quarter days.
VAT leases granted after 4 January 2006 (and before 27
July 2010): old VAT leases
A further SDLT return is not necessary solely because of the
increase in the rate of VAT. However, if ignoring VAT, the rents
payable under the lease are variable or uncertain so that a further
SDLT return will be necessary when the rents become ascertained,
the new NPV calculation should take account of the increased rate
What are the implications for business tenants?
- The guidance on old VAT leases will come as a relief to many
tenants who were faced with the prospect of having to review and
submit further SDLT returns for all old VAT leases as a direct
result of the increase in the standard rate of VAT.
- Tenants with old VAT leases will be treated differently
according to whether they have a lease where the rents are certain
or a lease where the rents are variable or uncertain.
If you have any questions about the content of this briefing,
please contact our Commercial Property Team.