SDLTM16035 | Reliefs and Exemptions: Overlap relief: Example 5

A lease is granted on 1 April 2004 for 25 years (the old lease)

• the date of expiry is 31 March 2029

• initial rent of £144,000 (£120,000 + VAT) per annum is payable under this old lease

• the lease contains a provision for a rent review to higher of market rent or passing rent with effect from 1 April 2009 and every fifth anniversary thereafter

• following the rent review effective from 1 April 2014, the passing rent was £240,000 (£200,000 + VAT) per annum

The old lease is surrendered and a new lease is granted on 1 April 2018 for 150 years

• rent of £210,000 (£175,000 + VAT) per annum is payable under this new lease

• there is no provision for rent reviews

1. As the first rent review under the old lease was after five years, it was ignored (refer to SDLTM13160). The net present value (NPV) of the old lease was £2,373,337

2. The overlap period is from 1 April 2018 until 31 March 2029, that is, 11 years

3. The rent payable under the new lease forthe first five years from 1 April 2018 is £210,000

4. The rent payable under the old lease at that time is £240,000. Although this amount was not used in the first NPV calculation, it was ‘‘taken into account’’ forthe purposes of overlap relief because it was the rent payable at that time in accordance with the terms of the old lease (and the old lease was subject to SDLT) - see example at SDLTM16011.

5. The new lease is not a lease with variable rent and so FA03/SCH17A/PARA7 is not in point. The NPV calculation should use rent of £0 for years 1 to 11 inclusive (as the old rent is more than the new rent but the figure to be included in the calculation cannot be less than £0) and rent of £210,000 for years 12 to 150 inclusive.

6. The calculator will not cope with this calculation and it should be performed manually.