Reviewing a lease upon termination

Reviewing a lease upon termination

Example where the effective date is on or after 07 February 2020

The effective date of a 10 year lease of a restaurant for rent of £255,000 per annum is 1 April 2020. The net present value (NPV) is calculated using the £255,000 payable in each of the 10 years.

An LBTT return was submitted and tax of £20,914 paid, based on the tax rates and bands that applied from 7 February 2020 and the calculated NPV amount of £2,120,734.65.

The tenant submits three-yearly review returns in 2023, 2026 and 2029. The tax rates and bands that applied at the effective date of 1 April 2020 will apply to recalculate the tax at each review date. 

The lease then terminates upon its natural expiry on 31 March 2030.

The tenant must complete a review return upon termination to reflect any changes that have been made to the lease since the last review return was submitted. Their return must be made no later than 30 April 2030. The tax rates and bands that applied at the effective date of 1 April 2020 will apply to recalculate the tax following termination of the lease.

Example where the effective date is on or before 06 February

The effective date of a 10 year lease of a restaurant for rent of £25,000 per annum is 1 November 2017. The net present value (NPV) is calculated using the £25,000 payable in each of the 10 years.

An LBTT return was submitted and tax of £579 paid, based on the tax rates and bands that applied between 1 April 2015 and 6 February 2020 and the calculated NPV.

The tenant submits three-yearly review returns in 2020, 2023 and 2026. The tax rates and bands that applied at the effective date of 1 November 2017 will apply to recalculate the tax at each review date. 

The lease then terminates upon its natural expiry on 31 October 2027.

The tenant must complete a review return upon termination to reflect any changes that have been made to the lease since the last review return was submitted. Their return must be made no later than 30 November 2027. The tax rates and bands that applied at the effective date of 1 November 2017 will apply to recalculate the tax following termination of the lease.