Nikka Sulton

When purchasing property, Stamp Duty Land Tax (SDLT) is a typical expense. Fortunately, most individuals are exempt from paying SDLT on their lease extension premium. Even if SDLT applies to the lease extension premium, it does not encompass professional fees associated with the transaction.

SDLT is only applicable to lease extensions exceeding £40,000 for the premium and an annual ground rent below £1,000. This overview provides insight based on Government guidance and should not substitute for personalized tax advice.

Does Stamp Duty apply to Lease Extensions?

SDLT applies to lease extensions surpassing £40,000 for the premium and having an annual ground rent below £1,000.

How much Stamp Duty do I need to pay?

The standard stamp duty rates apply, varying based on whether the property serves as your primary residence or not.

Residential Conveyancing

Extending your lease term may entail more complexities than anticipated.

Even if termed as a ‘variation’, a lease extension is deemed a surrender of the existing lease and the granting of a new one, effectively ending the old lease.

This process triggers Stamp Duty Land Tax (SDLT) implications. SDLT is applicable on the new lease, considering the rent and any additional consideration, like a premium. Typically, landlords may seek a premium for extending the lease, thus both the new rent and premium could incur SDLT based on applicable thresholds.

Overlap Relief

Regarding SDLT on the rent, overlap relief might apply, but only if the old lease was subject to SDLT, not if old stamp duty was paid, and not if the lease predates SDLT (before December 1, 2003). This relief aims to prevent double taxation, ensuring fair treatment during lease transitions. However, tenants can’t reclaim stamp duty paid on the original lease, adding to the financial considerations of lease extensions.

The “overlap period” spans from the new lease grant date to what would’ve been the old lease’s end. This period signifies a crucial juncture in SDLT calculations, impacting the financial implications of lease extension transactions. Rent reduction under the new lease during the overlap period depends on whether it factored into SDLT calculations for the old lease, reflecting the complexity of SDLT regulations in lease transactions.

For the surrender and regrant, SDLT isn’t payable on a deemed premium, but regular SDLT applies to any rent (with overlap relief). This distinction underscores the nuanced nature of SDLT calculations, requiring meticulous attention to detail and adherence to legal provisions. Moreover, cash consideration for surrender or a premium for the new lease incurs SDLT at regular rates, further emphasizing the financial implications and obligations associated with leasehold transactions.

If the property is your home

Rate	Charge Band
0%	Up to £125,000
2%	Over £125,000 to £250,000
5%	Over £250,000 to £925,000.
10%	Over £925,000 to £1,500,000.
12%	Over £1,500,000

Higher Rate Stamp Duty (rented property)

Properties that aren’t your main residence incur a higher Stamp Duty rate, applicable to second homes or buy-to-let properties. An additional 3% SDLT is imposed on such properties.

Rate	Charge Band
3%	Up to £125,000
5%	Over £125,000 to £250,000
8%	Over £250,000 to £925,000.
13%	Over £925,000 to £1,500,000.
15%	Over £1,500,000

Example 1 – Principal Private Residence

If you’ve consented to extend your residential lease by 90 years for £50,000 and the property is your main residence, no Stamp Duty is due.

Example 2 – Buy to Let

If you’ve accepted to extend your residential lease by 90 years for £50,000 and the property is rented or vacant, Stamp Duty at a rate of 3% is due, totaling £1,500. If the premium were under £40,001, no Stamp Duty would be owed.