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As we noted previously, when SDLT was first introduced in December 2003, the general scheme was that SDLT would be paid on the basis of the rents in the first five years of a lease. But, the fifth anniversary can give rise to further SDLT payments, and accordingly December 2008 means that these potential complications now arise.
It is particularly important to watch out for abnormal rent increases, outside the five-year period. The general rule is that rent increases (eg reviews) after the first five years are ignored. But, for anti-avoidance purposes you cannot have an abnormally low rent during the first five years with an ‘abnormal’ increase thereafter. In essence, if there is an increase of more than 20% for each complete year since the rent was last fixed then anti-avoidance provisions come into force, and thus further SDLT will have to be paid. See last month’s issue (p22) for an example of how this works.
The provisions are complex and they are a minefield for the unwary. A further complication is that HMRC has now announced that it will be making changes to the rules as from budget day 2009. The likelihood is that many of the current complexities will be removed. But, at the present time we do not know what the changes will be. In practical terms, it looks as though leases that have a five-year anniversary between 1 December 2008 and budget day 2009 may well be disadvantaged. © Practical Lawyer
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December 2008 |
