Under FA03/SCH17A/PARA7, special rules apply to determine the
rent to be taken into account for the net present value (NPV)
calculation in any case where the rent, or part of the rent,
payable under a lease is variable, contingent, uncertain or
unascertainable at the date of grant.
These rules apply where rent is variable because of
provisions in the lease, for example where the lease provides for
fixed rent increases over the term (note that this is as opposed to
the treatment of variations
outside the terms of the original
lease, which are dealt with at
SDLTM15000).
Rent taken into account in respect of each of the first
five years of the lease
The actual figures of rent payable are used for the NPV
calculation, if known at the date of grant. Where variations in
rents are fixed, the calculation will be based on these amounts. If
however the rent payable for any of the first five years is either
contingent, uncertain or unascertainable at the date of grant,
special rules apply to quantify the rent for this period for stamp
duty land tax purposes- refer to
SDLTM13150.
Rent taken into account for years after the first
five
For the purposes of the NPV calculation, the actual rent
payable for any period
after the first five years is substituted by the
figure of ‘highest rent’ payable in respect of any
consecutive twelve-month period in the first five years of the
term. To find the highest rent, take the actual rent, if known, or
any estimated or assumed figures of rent, for each twelve-month
period of the first five years of the term of the lease (beginning
with the date of grant) and find the highest figure of rent.
In practice, therefore, any rent changes after the first five
years of a variable lease are ignored
unless they constitute an
‘abnormal’ increase under FA03/SCH17A/PARA14 and
FA03/SCH17A/PARA15 (refer to
SDLTM13250). The date of the beginning
of this ‘highest rent’ twelve-month period is the start
date for the purposes of determining whether an increase in
variable rent is ‘abnormal’.
Refer to
SDLTM13140 to SDLTM13145 for
examples.
