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Stamp Duty Land Tax on Surgery Leases

Stamp Duty Land Tax (SDLT) was introduced in December 2003. It is a tax payable on a variety of property transactions, including purchases and transfers of freehold and leasehold land and property.

GP Practices sometimes believe they are exempt from SDLT because of the ‘partnership exemption’. Whilst this may be the case for some transactions, the truth is unfortunately much more complicated.

What types of transaction are liable for SDLT?

SDLT is payable on UK land transactions that have a chargeable consideration – for example, on the purchase price of a property, or when a lease is granted.

For the purposes of SDLT, a chargeable consideration is defined by HMRC as “anything given for the transaction that is money or money’s worth”. When the value of a transaction rises above a certain threshold, the purchaser is liable to pay the tax.

The calculation of SDLT on the grant of a new commercial lease depends on the length of the lease, the premium paid (if any) and the rent payable under the lease. A helpful SDLT calculator can be found on the HMRC website: www.gov.uk/stamp-duty-land-tax/nonresidential-and-mixed-use-rates

Who is responsible for paying SDLT?

It is the responsibility of the purchaser or tenant (upon the granting of a lease) to calculate the amount of tax and complete and submit a Land Transaction Return (SDLT1) to HMRC within 30 days of the effective date of completion of a transaction.

A solicitor can help complete this on behalf of the purchaser or tenant, but legally the purchaser is responsible for the accuracy and timeliness of the information submitted. Failure to submit the Land Transaction Return and/or to pay SDLT on time will result in penalties. Interest is charged on both late paid tax and outstanding penalties.

Joint purchasers, such as a partnership, are jointly liable to pay the tax, although the proportion that each individual partner should pay can be subject to private agreement within the partnership.

Additional points practices should be aware of:

  • SDLT regulations for freehold and leasehold properties differ.
  • SDLT may be payable on certain changes to the lease. For example, lease renewals have the same SDLT implications as new leases.
  • A sale and leaseback would normally trigger two payments of SDLT; one by the purchaser of the surgery and the second by the tenants on completion of their lease. However, you can claim tax relief on the lease element of the transaction if the seller and the tenant are identical. Be aware though that this doesn’t get you off the hook for ever – the SDLT will become due on the first lease assignment.
  • If SDLT was paid in full when the lease was originally entered into, it is only payable on the premium element of any lease assignment. As most GP surgery leases are 25 years or less and have no premium value, surgery lease assignments are usually SDLT free.
  • Some changes in partnership arrangements may incur SDLT. This is a particularly complicated area, but introducing and withdrawing property from a partnership are both chargeable events, regardless of whether the name on the lease or at the Land Registry changes.
  • If an original lease term expires, but the tenant remains in occupation of the premises, it is called holding over. Once the lease runs past its contractual expiry date, it is treated as if the original term of the lease has been extended by one year. If SDLT was paid at the outset of a lease, or if the additional year takes the lease over the SDLT threshold, then a further SDLT return will need to be filed with HMRC and relevant tax paid. This is required for each subsequent year the lease is held over.

If a rent review occurs within the first 5 years of a lease, SDLT should be recalculated using the new rent for the remaining years, and a new submission made to HMRC. This can result in either additional tax to pay, or a refund in the event SDLT has been overpaid.

If you need advice on SDLT payments for your practice or any other matter related to your Surgery building, contact DR Solicitors on 01483 511 555, or email at info@drsolicitors.com.