Tenant’s holding over – are you aware of your potential SDLT liability?

Many tenants are aware of their Stamp Duty Land Tax “SDLT” liability upon entering a lease but few realise that an additional tax liability may be triggered on expiry.  Where a tenant has a lease granted after 1 December 2003 (which was not entered into pursuant to an agreement for lease made on or before 10 July 2003) and that lease falls within the protection of the Landlord and Tenant Act 1954, SDLT will need to be recalculated if there is a period of holding over.

By way of example, when an outgoing tenant is unable to deliver vacant possession by the expiry of their lease and is allowed to hold over for a month until their new premises becomes available, an additional year’s term will be added when calculating the SDLT due.  They will therefore not only have to submit a new return but also pay any additional amount within 30 days of the lease’s expiry.  Failure to do so could result in interest being added and penalties being levied.  The same applies where a tenant is holding over whilst negotiations are ongoing for a new lease of the same premises.

It should be remembered that SDLT is a self-assessment tax and it is doubtful as to how many tenants who are holding over take the potential SDLT liability into consideration.  HMRC’s enforcement powers are not time barred and they have all the information to hand in respect of lease expiration dates and the commencement of any new lease to be able to pursue tenant’s for non-payment.  It may therefore be prudent to pay up now rather than risk penalties at a later date.