Transitional lease - variation making a previously non-chargeable lease chargeable


A ten year lease was executed on 1 May 2013. An SDLT return was submitted and there was no liability due as the consideration was below the threshold to charge tax.

On 1 May 2015, a minute of variation was executed to extend the lease for a further 10 years and increase the annual rent to a total of £120,000. Under Article 12 of the Land and Buildings Transaction Tax (Transitional Provisions) (Scotland) Order 2014, this variation of the lease involving an increase of rent is treated as the grant of a new lease for LBTT purposes.

The effective date will be the date the minute of variation was executed, 1 May 2015. An LBTT return is required by the filing date of 31 May 2015.

The chargeable consideration will be all of the rent payable from the beginning of the new lease, that is, £120,000 per annum from May 2015 till April 2033.

The Net Present Value (NPV) is calculated using the £120,000 payable over the term of the new lease. This results in a NPV of £1,645,180.49.

Using the rates and bands for leases, the total tax chargeable would be :

(£150,000 x 0%) + (£1,495,180.40 x 1%) = £14,951.

The date for the first three yearly review will be the third anniversary of the effective date of the transaction, 1 May 2018. This return must be made to us by the filing date of 31 May 2018.

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