Finance Bill

House of Commons

Session 2003 - 04
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Finance Bill

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 2 — Re-enactment, with changes, of amendments made by section 109 regulations
530

      (5)
If the result as regards the rent paid or payable in respect of the
first five years of the term of the lease is that less tax is payable in
respect of the transaction than has already been paid—
(a)
the purchaser may, within the period allowed for
amendment of the land transaction return, amend the
5
return accordingly;
(b)
after the end of that period he may (if the land transaction
return is not so amended) make a claim to the Inland
Revenue for repayment of the amount overpaid.
Rent for overlap period in case of grant of further lease
10
9     (1)
This paragraph applies where—
(a)
A surrenders an existing lease to B (“the old lease”) and in
consideration of that surrender B grants a lease to A of the
same or substantially the same premises (“the new lease”),
(b)
the tenant under a lease (“the old lease”) of premises to
15
which Part 2 of the Landlord and Tenant Act 1954 or the
Business Tenancies (Northern Ireland) Order 1996 applies
makes a request for a new tenancy (“the new lease”) which
is duly executed, or
(c)
a person claiming relief against re-entry or forfeiture as
20
under-lessee in relation to the original sub-lease (“the old
lease”) is granted a lease (“the new lease”) in pursuance of
an order of a court.
      (2)
For the purposes of this Part the rent payable under the new lease
in respect of any period falling within the overlap period is treated
25
as reduced by the amount of the rent that would have been
payable in respect of that period under the old lease.
      (3)
The overlap period is the period between the date of grant of the
new lease and what would have been the end of the term of the old
lease had it not been terminated.
30
      (4)
The rent that would have been payable under the old lease shall be
taken to be the amount taken into account in determining the
stamp duty land tax chargeable in respect of the acquisition of the
old lease.
      (5)
This paragraph does not have effect so as to require the rent
35
payable under the new lease to be treated as a negative amount.
Tenants’ obligations etc that do not count as chargeable consideration
10    (1)
In the case of the grant of a lease none of the following counts as
chargeable consideration—
(a)
any undertaking by the tenant to repair, maintain or insure
40
the demised premises (in Scotland, the leased premises);
(b)
any undertaking by the tenant to pay any amount in
respect of services, repairs, maintenance or insurance or
the landlord’s costs of management;
(c)
any other obligation undertaken by the tenant that is not
45
such as to affect the rent that a tenant would be prepared
to pay in the open market;

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 2 — Re-enactment, with changes, of amendments made by section 109 regulations
531

(d)
any guarantee of the payment of rent or the performance
of any other obligation of the tenant under the lease;
(e)
any penal rent, or increased rent in the nature of a penal
rent, payable in respect of the breach of any obligation of
the tenant under the lease.
5
      (2)
Where sub-paragraph (1) applies in relation to an obligation, a
payment made in discharge of the obligation does not count as
chargeable consideration.
      (3)
The release of any such obligation as is mentioned in sub-
paragraph (1) does not count as chargeable consideration in
10
relation to the surrender of the lease.
Cases where assignment of lease treated as grant of lease
11    (1)
If the grant of a lease (“the original lease”) is exempt from charge
by virtue of any of the provisions specified in sub-paragraph (2),
the first assignment of the lease that is not exempt from charge by
15
virtue of any of those provisions is treated for the purposes of this
Part as if it were the grant of a lease by the assignor.
      (2)
The provisions are—
(a)
section 57A (sale and leaseback arrangements);
(b)
Part 1 or 2 of Schedule 7 (group relief or reconstruction or
20
acquisition relief);
(c)
section 66 (transfers involving public bodies);
(d)
Schedule 8 (charities relief);
(e)
any such regulations as are mentioned in section 123(3)
(regulations reproducing in relation to stamp duty land tax
25
the effect of enactments providing for exemption from
stamp duty).
      (3)
The grant is treated as being—
(a)
for a term equal to the unexpired term of the original lease,
and
30
(b)
on the same terms as those on which the assignee holds
that lease after the assignment.
      (4)
This paragraph does not apply where the relief in question is
group relief, reconstruction or acquisition relief or charities relief
and is withdrawn as a result of a disqualifying event occurring
35
before the effective date of the assignment.
      (5)
For the purposes of sub-paragraph (4) “disqualifying event”
means—
(a)
in relation to the withdrawal of group relief, the purchaser
ceasing to be a member of the same group as the vendor
40
(within the meaning of Part 1 of Schedule 7);
(b)
in relation to the withdrawal of reconstruction or
acquisition relief, the change of control of the acquiring
company mentioned in paragraph 9(1)(a) of that Schedule
or, as the case may be, the event mentioned in paragraph
45
11(1)(a) or (2)(a) of that Schedule;
(c)
in relation to the withdrawal of charities relief, a
disqualifying event as defined in paragraph 2(3) of
Schedule 8.

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 2 — Re-enactment, with changes, of amendments made by section 109 regulations
532

Assignment of lease: responsibility of assignee for returns etc
12    (1)
Where a lease is assigned, anything that but for the assignment
would be required or authorised to be done by or in relation to the
assignor under or by virtue of—
(a)
section 80 (adjustment where contingency ceases or
5
consideration is ascertained),
(b)
section 81A (return or further return in consequence of
later linked transaction),
(c)
paragraph 3 or 4 of this Schedule (return or further return
required where lease for indefinite period continues), or
10
(d)
paragraph 8 of this Schedule (adjustment where rent
ceases to be uncertain),

shall, if the event giving rise to the adjustment or return occurs
after the effective date of the assignment, be done instead by or in
relation to the assignee.
15
      (2)
So far as necessary for giving effect to sub-paragraph (1) anything
previously done by or in relation to the assignor shall be treated as
if it had been done by or in relation to the assignee.
      (3)
This paragraph does not apply if the assignment falls to be treated
as the grant of a lease by the assignor (see paragraph 11).
20
Agreement for lease
12A   (1)
This paragraph applies where in England and Wales or Northern
Ireland—
(a)
an agreement for a lease is entered into, and
(b)
the agreement is substantially performed without having
25
been completed.
      (2)
The agreement is treated as if it were the grant of a lease in
accordance with the agreement (“the notional lease”), beginning
with the date of substantial performance.

The effective date of the transaction is that date.
30
      (3)
Where a lease is subsequently granted in pursuance of the
agreement—
(a)
the notional lease is treated as if it were surrendered at that
time, and
(b)
the lease itself is treated for the purposes of paragraph 9
35
(rent for overlap period in case of grant of further lease) as
if it were granted in consideration of that surrender.
      (4)
Where sub-paragraph (1) applies and the agreement is (to any
extent) afterwards rescinded or annulled, or is for any other
reason not carried into effect, the tax paid by virtue of that sub-
40
paragraph shall (to that extent) be repaid by the Inland Revenue.

Repayment must be claimed by amendment of the land
transaction return made in respect of the agreement.
      (5)
In this paragraph “substantially performed” and “completed”
have the same meanings as in section 44 (contract and
45
conveyance).

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 2 — Re-enactment, with changes, of amendments made by section 109 regulations
533

Assignment of agreement for lease
12B   (1)
This paragraph applies, in place of section 45 (contract and
conveyance: effect of transfer of rights) where in England and
Wales or Northern Ireland a person assigns his interest as lessee
under an agreement for a lease.
5
      (2)
If the assignment occurs without the agreement having been
substantially performed, section 44 (contract and conveyance) has
effect as if—
(a)
the contract were with the assignee and not the assignor,
and
10
(b)
the consideration given by the assignee for entering into
the contract included any consideration given by him for
the assignment.
      (3)
If the assignment occurs after the agreement has been
substantially performed—
15
(a)
the assignment is a separate land transaction, and
(b)
the effective date of that transaction is the date of the
assignment.
      (4)
Where there are successive assignments, this section has effect in
relation to each of them.
20
Increase of rent treated as grant of new lease: variation of lease
13    (1)
Where a lease is varied so as to increase the amount of the rent, the
variation is treated for the purposes of this Part as if it were the
grant of a lease in consideration of the additional rent made
payable by it.
25
      (2)
Sub-paragraph (1) does not apply to an increase of rent in
pursuance of a provision contained in the lease (but see paragraph
14).
Increase of rent treated as grant of new lease: abnormal increase after fifth year
14    (1)
This paragraph applies if, after the end of the fifth year of the term
30
of a lease—
(a)
the amount of rent payable increases (or is increased) in
accordance with the provisions of the lease, and
(b)
the rent payable as a result (“the new rent”) is such that the
increase falls to be regarded as abnormal (see paragraph
35
15).
      (2)
The increase in rent is treated as if it were the grant of a lease in
consideration of the excess rent.
      (3)
The excess rent is the difference between the new rent and the rent
previously taxed.
40
      (4)
The rent previously taxed is—
(a)
where the provisions of this paragraph have not
previously applied to a rent increase under the lease, the
rent that is assumed to be payable after the fifth year of the
term of the lease (in accordance with paragraph 7(3));
45

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 2 — Re-enactment, with changes, of amendments made by section 109 regulations
534

(b)
where the provisions of this paragraph have previously so
applied, the rent payable as a result of the last increase in
relation to which the provisions of this paragraph applied.
      (5)
The deemed grant is treated as—
(a)
made on the date on which the increased rent first became
5
payable, and
(b)
for a term equal to the unexpired part of the original lease,

and as linked with the grant of the original lease (and with any
other transaction with which that transaction is linked).
      (6)
The assumption in paragraph 7(3) (that the rent does not change
10
after the end of the fifth year of the term of a lease) does not apply
for the purposes of this paragraph or paragraph 15 except for the
purpose of determining the rent previously taxed.
Increase of rent after fifth year: whether regarded as abnormal
15
Whether an increase in rent is to be regarded for the purposes of
15
paragraph 14 as abnormal is determined as follows:—

Step One

Find the start date, which is—
(a)
where the provisions of that paragraph have not
previously applied to a rent increase under the lease, the
20
beginning of the period by reference to which the rent
assumed to be payable after the fifth year of the term of the
lease is determined in accordance with paragraph 7(3);
(b)
where the provisions of that paragraph have previously so
applied, the date of the last increase in relation to which the
25
provisions of that paragraph applied.

Step Two

Divide the period between the start date and the date on which the
new rent first becomes payable (“the reference period”) into—
(a)
successive periods of twelve months running from the
30
start date (if any), and
(b)
any remaining period which does not fall within
paragraph (a).

Step Three

Find the factor by which the retail prices index has increased over
35
each period identified in step two.

This is a figure expressed as a decimal and determined by the
formula—

where—

RD is the retail prices index for the month in which the last
40
day of the period in question falls, and

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 2 — Re-enactment, with changes, of amendments made by section 109 regulations
535


RI is the retail prices index for the month in which the first
day of the period in question falls.

If, in relation to any period, RD is equal to or less than RI, the factor
by which the retail prices index has increased over the period in
question shall be treated as nil.
5

If, in relation to any period, the figure determined in accordance
with the formula would be a figure having more than 3 decimal
places, round it to the nearest third decimal place.

Step Four

Find the relevant factor for each period identified in step two.
10

This is a figure expressed as a decimal and determined by the
formula—

where—

m is the number of months in the period in question (treating
part of a month as a whole month), and
15

r is the factor by which the retail prices index has increased
over the period in question, determined under step three.

If, in relation to any period, the figure determined in accordance
with the formula would have more than 3 decimal places, round it
to the nearest third decimal place.
20

Step Five

Find the uplift factor for the reference period as follows.

If there is only one period identified in step two, the uplift factor
for the reference period is the relevant factor for that period.

If there are only two periods identified in step two, the uplift factor
25
for the reference period is calculated by multiplying the relevant
factors for those periods.

If there are more than two periods identified in step two, the uplift
factor for the reference period is calculated by—
(a)
multiplying the relevant factors for the first two periods,
30
(b)
multiplying the result by the relevant factor for the next
period,
(c)
if there are further periods, multiplying the result by the
relevant factor for the next period,

until all periods have been taken into account.
35

If the uplift factor for the reference period would be a figure
having more than 3 decimal places, round it to the nearest third
decimal place.

Finance Bill
Schedule 37 — Stamp duty land tax and stamp duty
Part 2 — Re-enactment, with changes, of amendments made by section 109 regulations
536


Step Six

The rent increase is regarded as abnormal if the new rent is greater
than:

where—

R is the rent previously taxed (see paragraph 14(4)), and
5

UF is the uplift factor for the reference period.
Surrender of existing lease in return for new lease
16
Where a lease is granted in consideration of the surrender of an
existing lease between the same parties—
(a)
the grant of the new lease does not count as chargeable
10
consideration for the surrender, and
(b)
the surrender does not count as chargeable consideration
for the grant of the new lease.

Paragraph 5 (exchanges) of Schedule 4 (chargeable consideration)
does not apply in such a case.
15
Assignment of lease: assumption of obligations by assignee
17
In the case of an assignment of a lease the assumption by the
assignee of the obligation—
(a)
to pay rent, or
(b)
to perform or observe any other undertaking of the tenant
20
under the lease,

does not count as chargeable consideration for the assignment.
Reverse premium
18    (1)
In the case of the grant, assignment or surrender of a lease a
reverse premium does not count as chargeable consideration.
25
      (2)
A “reverse premium” means—
(a)
in relation to the grant of a lease, a premium moving from
the landlord to the tenant;
(b)
in relation to the assignment of a lease, a premium moving
from the assignor to the assignee;
30
(c)
in relation to the surrender of a lease, a premium moving
from the tenant to the landlord.
Provisions relating to leases in Scotland
19    (1)
In the application of this Part to Scotland—
(a)
any reference to the term of a lease is to the period of the
35
lease, and
(b)
any reference to the reversion on a lease is to the interest of
the landlord in the property subject to the lease.