Tax is due on any premium paid in addition to rent, which the LBTT(S)A 2013 describes as ‘consideration other than rent’. The premium is taxed using the tax rates that apply to purchases of non-residential property.
However where the ‘relevant rent’ (in other words the average rent) over the term of the lease is at least £1,000 per annum, the nil rate tax band does not apply in relation to the premium; all such consideration is taxed at the tax rate of the next tax band.
The sum of the tax due on the rent and premium gives the total amount of tax due on the lease.
Treatment of the premium in linked transactions
The normal rules for calculating tax apply where the lease forms one of a number of linked transactions.
However, where the lease forms one of a number of linked transactions, the main subject matter of the transactions is partly residential property and partly non-residential property and the ‘relevant rent’ of the non-residential property is at least £1,000 per annum, special rules apply.
In such cases, the transactions are treated as if they were two sets of transactions; one whose subject matter consists of interests in all the residential property and one whose subject matter consists of interests in all the non-residential property, based on a just and reasonable apportionment of both.
For the purposes of calculating the tax on the premium, the ‘relevant rent’ is either:
- the annual rent in relation to the transaction; or
- if the lease forms one of a number of linked transactions, then the relevant rent is the total annual rents for all the transactions.
The ‘annual rent’ is the average annual rent over the term of the lease or, if different amounts are payable for different parts of the term and those amounts are known at the effective date, then the annual rent is the average annual rent over the term of the lease for which the highest ascertainable rent is payable.