After much deliberation, HMRC has decided on its approach, in the light of the forthcoming VAT rate change on 4 January 2011, to the assessment of SDLT lease duty where the lease is subject to VAT. See Treatment of VAT changes when calculating net present value (NPV) of rent for Stamp Duty Land Tax.
SDLT is, of course, chargeable upon any VAT payable by a buyer or tenant in respect of the land transaction. For leases granted since the VAT rate change had legal force on 27 July (the date section 3 Finance (No.2) Act 2010 came into force), the HMRC approach is, in essence, to view the rate change as a fixed rent increase. HMRC’s view is that the amount of VAT to be brought into the chargeable consideration should reflect the VAT rate position known at the effective date of the transaction. Hence, it says that: “The VAT on the rent payable for the period from the effective date [of the lease] to the day preceding the first rent payment date on or after 4 January 2011 should be calculated at 17.5 per cent.” This means that where the lease operates on a normal quarterly in advance basis, a lease duty calculation will involve assessing rent plus VAT at 17.5% through to March 24, and then rent plus VAT at 20% from March 25 onwards.
As regards possible further VAT rate increases, HMRC says that “subsequently legislated changes to the rate of VAT do not affect the computation of SDLT liability or create the need for a further return.” This saves old lease returns, dating back to early 2006, from having to be reviewed in the light of recent changes in the VAT rate, unless the rental itself was variable or uncertain .