Renting accommodation to your business
SDLT basics
It’s common knowledge that stamp duty land tax (SDLT) , and its equivalents in Scotland and Wales, is payable on transactions where land or buildings are transferred. Less well known is that charging rent can trigger or increase the SDLT etc. bill.
Trap. Rent-related SDLT etc. doesn’t just apply for commercial property, it can apply to residential and mixed used properties too. The method for working out the liability is the same for all types of property but the rates and values above which SDLT etc. starts to apply (the nil rate band) differ.
SDLT timing
The liability, if any, for rent-related SDLT etc. isn’t payable when the rent is paid but at the time the lease is granted to the tenant. The amount of rent payable under the lease doesn’t always affect the SDLT etc. liability.
Tip. Where the rent is nominal (a peppercorn rent) SDLT etc. is worked out using the lump sum (lease premium), if any, paid for granting the lease.
Significant rent
Where the rent payable is more than nominal (HMRC says this means more than £1,000 per year), you must calculate its net present value (NPV). Broadly, this is the capital value over the term of the tenancy. For example, if you had a five-year agreement for rent of, say, £12,000 per year, that’s a capital value of £60,000. But, because the rent is payable over time its value is discounted to reflect how much amounts paid in later years are worth in real terms now, i.e. its present value.
Tip. HMRC provides an SDLT calculator for lease/rental agreements on its website. Revenue Scotland and the Welsh government also provide help for working out their land transaction taxes (see The next step ).
Under the limit
Where the NPV of rent is below the SDLT nil rate band (£125,000 for residential and mixed use property and £150,000 for commercial or mixed use), there’s no liability. Even ignoring the discount needed to arrive at the NPV, rent has to be fairly high to affect the SDLT bill. So, unless the rent is substantial you don’t need to worry.
Rental agreements with SDLT
Some rental agreements aren’t subject to SDLT. Rent paid under a licence which allows use of land or buildings is outside the scope of SDLT (see The next step ). The reason is that a licence only gives the tenant a non-exclusive right to use the property, whereas a lease gives a tenant exclusivity. Similarly, a “tenancy at will”, which is an open ended arrangement where the owner allows someone to occupy their land or buildings for rent for an unspecified (usually short) period is also exempt from SDLT.
Tip. If you intend to charge your company significant rents for using your property avoid SDLT by granting a licence to occupy it rather than a formal lease.
For links to the calculator and guidance and a licence agreement, visit https://www.tips-and-advice.co.uk , Download Zone, year 22, issue 16.
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