SDLT – computing NPV of leases re VAT rate changes
HMRC’s Stamp Office have announced how they intend to take acount of the forthcoming increase in the VAT rate that takes effect from 4 January 2011.
This is relevant as it may affect leases where the landlord has the right to require the tenant to pay any VAT chargeable on the rents.
HMRC’s current view is that the amount to be brought into the chargeable consideration should reflect the VAT rate position known at the effective date of the transaction. Thus they draw a distinction between leases with an effective date before and after 27 July 2010. This was the date that Section 3 Finance (No.2) Act 2010 came into force.
Lease with an effective date on or after 27 July 2010
The calculation of Net Present Value (NPV) should take into account VAT at the rates applicable to the appropriate proportions of the first five years of the lease. The VAT on the rent payable for the period from the effective date to the day preceding the first rent payment date on or after 4 January 2011 should be calculated at 17.5 per cent. The VAT element on the rent payable on and from the first rent payment date on or after 4 January 2011 should be 20 per cent.
Lease with an effective date before 27 July 2010 (but after 4 January 2006)
HMRC do not require a further return just because the rate of VAT has changed. However, for any lease with variable or uncertain rent, a return will usually be required in line with the normal rules.