The holding-over period is automatically treated as a one-year extension to the expired lease and (if the lease was granted on or after 1 December 2003) SDLT will be charged. Accordingly, at the beginning of the holdingover period, T must recalculate the SDLT payable for the lease. That will be done by looking at rents and any premium paid for the original contractual lease, and also for the implied one-year holding-over period. If SDLT arises from this calculation, then HMRC must be notified no later than 30 days after the holding-over period begins (not ends). Moreover, the requirement to recalculate the SDLT is a rolling obligation. Accordingly, if the holding-over period continues after one year, then a further one-year period is implied – and a new SDLT calculation must be carried out (and, where necessary, notified to HMRC).

What happens when a renewal lease is agreed with L? Usually, the new term will start on the day after the previous contractual lease expired. If T has been holding over in the meantime, then there will be an overlap between the SDLT charged during that holding-over period, and the SDLT that will be chargeable on the renewal lease. Any SDLT paid for the holding-over period will be deducted from SDLT payable for the renewal lease. Conversely, if the rent payable during the holding-over period is increased by the renewal lease, then additional SDLT for that holding-over period may be due.

Example: T’s business lease ends on 30 November 2010, but T remains in occupation. Rent under the lease is £150,000pa. A renewal lease is granted on 1 March 2012, back-dated to 1 December 2010, with an increased annual rent of £350,000.

If the original lease was granted on or after 1 December 2003: the period of holding over will need to be notified if the net present value of the rent for each additional year means that more tax is payable. If the lease started on 1 December 2003 the net present value of the original lease would have been £917,181. On 1 December 2010 the lease is treated as extended by one year and the net present value now becomes £1,031,093. Extra tax is due and notification would have to be made by 31 December 2010. Likewise, on 1 December 2011, if the lease is again treated as extended by a further year, that would result in a net present value of £1,141,152. Notification again has to be made as more tax is due.

If the original lease was granted prior to 1 December 2003: the holding over is an extension of the original lease and does not need to be notified at all. If the increase in rent during the holding-over period (£249,315 when the renewal lease is granted) is paid for the grant of that renewal lease, it will be taxed as a premium for the grant of the renewal lease, together with any tax due on the net present value of the renewal lease. Only one return will have to be made notifying the grant of the renewal lease.

Source: www.hmrc.gov.uk.

Conveyancers should advise their clients of the importance of recalculating SDLT (and filing the necessary notification) on holding over at the end a post1 December 2003 lease. In practice, most leases are for five years or more and, as we approach the fifth anniversary of the introduction of SDLT, cases of holding over are likely to increase in frequency. The reality is that most clients will have no idea that they should be filing SDLT returns within 30 days of the end of the expired lease (if they hold over). Accordingly, prudent conveyancers will avoid complaints by contacting clients to remind them of their obligations and maybe offer their firm’s services in calculating the additional SDLT and notifying HMRC. Source: TLT Solicitors, article in [2008] 206 Property Law Journal 22. © Practical Lawyer