It seems that these may be “linked leases” in which case a combined figure of NPV would be required for SDLT purposes. FA 2003 s.108 defines linked transactions for SDLT purposes as: “part of a single scheme, arrangement or series of transactions between the same vendor and purchaser or, in either case, persons connected with them.” The proposals would meet this definition, being related transactions between you and the same landlord.
Leases can be linked for SDLT purposes in one of two different ways as follows:
Successive leases where a lease is renewed otherwise than at arm’s length between the same landlord and tenant (para 5, Sch.17, FA 2003), or
Under a single scheme or arrangement (s108 FA 2003) where leases on separate properties are negotiated as part of a single bargain or agreement between the same landlord and tenant. Further details about when HMRC see these applying can be found in their manual SDLTM17035.
The successive lease rules should be considered before the more general “single scheme or arrangement” provisions, so first we need to look at the lease that you have renewed to see if it will be caught as a direct successor to the previous lease. As the lease has seemingly expired naturally before it was renewed, and was presumably renewed at arm’s length, it would not appear to be caught under these rules.
However, the single scheme rules are likely to apply in this case to link the new leases, which were negotiated at the same time between the same two parties in a way that makes it likely that it is a single bargain.
As a single scheme, the SDLT calculations will be based on the sum of net present values for both leases (“TNPV”) as though the leases were acquired as a single transaction (para 2(6), Sch 5, FA 2003).
The resulting SDLT liability is then apportioned between the two leases using the formula “NPV/TNPV”: two separate calculations are performed with the NPV of each lease’s respective NPV to attribute the total SDLT to each lease.
For example:
NPV Unit 1 = £300,000
NPV Unit 2 = £200,000
TNPV of both leases = £500,000
SDLT due on combined TNPV = (£150,000 @ 0%, £100,000 @ 2%, £250,000 @ 5%) £14,500
SDLT for Unit 1: 300k/500k x £14,500 = £8,700
SDLT for Unit 2: 200k/500k x £14,500 = £5,800
(A further worked example can be found at HMRC’s manual (SDLTM17055) which looks at a case where different SDLT rates apply at the respective lease dates).
The total SDLT due in respect of leases, as linked transactions, may be reported on a single SDLT return, removing the need for separate returns (SDLTM30100).
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