Solicitors & tax specialists

Ann L Humphrey

From complexity to simplicity

Allow us to demonstrate

The following case studies are based on matters which have been handled by the firm and give a flavour of the type of work we do.

Case Study: VAT – When is a book not a book? (December 2009)
<p>A small commercial law firm referred one of their clients for help in establishing the VAT... Read more >
Case Study: Stamp Duty Land Tax - Transfer of property to a corporate partner on partnership dissolution (November 2009)
A husband (H) and wife (W) are in partnership, through a limited liability partnership (LLP), with... Read more >
Case Study: Stamp Duty Land Tax – Option to renew lease or break clause (April 2009)
Is it preferable for SDLT purposes to have a 5 year lease with option to renew for further 5 years... Read more >
Case Study: UK - US corporate joint venture – Choice of vehicle (January 2008)
UK Co. operated a share registration business in the UK. US Bank had a similar business in the US.... Read more >
Case Study: Sale of loss-making company – Construction of wording in share sale agreement (September 2007)
A loss-making company (L Ltd) was sold for £1. At the time of sale, L Ltd had significant... Read more >
Case Study: Tax partner for hire (December 2005 to July 2006)
A large law firm for which we had been doing ad hoc tax consultancy, lost both its only tax partner... Read more >

Case Study: Stamp Duty Land Tax – Option to renew lease or break clause (April 2009)

Q: Is it preferable for SDLT purposes to have a 5 year lease with option to renew for further 5 years with first year of follow-on lease rent-free or a 10 year lease with a break clause at the end of year 5 which is exercised.

 

Lease with break clause which is exercised at end of year 5

 

SDLT is calculated on basis of full 10 year term. No refund for years 6 to 10 if break clause exercised. Highest rent in years 1 to 5 used as rent for years 6 to 10 in SDLT calculation. Rent-free year 6 not reflected in the SDLT calculation.

 

Lease for 5 years with option to renew

 

SDLT is calculated on basis of 5 year term. Option ignored initially.
If the option to renew is exercised it is extremely likely that the ‘successive linked leases’ rules in paragraph 5 of Schedule 17A FA 2003 will apply. The two successive leases will then be treated as one lease, granted at the same time as the first lease, for a 10 year term. The rent-free year 1 of lease 2 will not be reflected in the SDLT calculation as that year will be treated as year 6 of the notional 10 year lease. Tax will be charged on that basis and credit given for any SDLT paid on lease 1. 

 

If the linked leases rules do not apply the two leases will be taxed separately, the rent-free year 6 will be year 1 of the second lease and therefore taken into account in the SDLT calculation

 

A: The option to renew route has cash-flow advantages if the option is exercised and saves SDLT if it is not. 

 

 

 

 

 

 


T: +44(0)20 7378 9370 F: +44(0)20 7378 9360 E: annlhumphrey@dial.pipex.com
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