Business tenants may be in for an unwelcome surprise if they find they have unintentionally overlooked a requirement to lodge a tax return, and so become liable for a penalty. Sean Ryan, Partner in the Real Estate Team looks at this in more detail.
Often, a tenant will stay in occupation of its premises after
the end of the original lease term. This may be while a new
lease is being negotiated, or simply because the arrangement suits
both landlord and tenant at the time. This "holding
over" will be under a statutory tenancy which is created
automatically and will run on until a new lease is granted, or
until the arrangement is brought to an end by either side.
What can be easily overlooked, however, is the potential for
liability for Stamp Duty Land Tax (SDLT) which can arise. For
SDLT purposes, the statutory tenancy is treated (on day one) as the
grant of a new lease for the original term of the lease plus one
year (and, if the statutory tenancy lasts into a second year, as a
grant of the original term plus two years, and so on).
This may mean that a requirement arises on each occasion to notify
the Revenue by submitting an SDLT return and to pay tax (or more
tax).
If the rent under the original lease, at the time it was granted,
triggered a change to tax (by exceeding the relevant threshold),
more tax may be due. Alternatively, the addition of the extra
year may take the lease over the chargeable threshold, giving rise
to a requirement to notify and account for tax for the first
time.
This is easy to overlook, but important to keep under review, as
penalties for late submission (starting at £100 after 30
days) can quickly mount up.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
