CheckLists.Tax (beta)
J3: Grant of lease
Formalities
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SDLT
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Lease premium charged as consideration
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Lease rent charged on the basis of the net present value of the rent payable over full term
- See Sch 5(3) for formula.
Legislation: FA 2003, s.56 and Sch 5(2)
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Contingent rent
- If contingent after 5 years, use highest rent in first 5 years as annual rent.
- If contingent in first 5 years, use best estimate.
- Special rules for abnormal variations.
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Contingent term
- No account taken of any contingency that may shorten term.
Legislation: Sch 17A(2)
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Extended term
- More tax may be payable.
Legislation: Sch 17A(3)
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SDLT group relief
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Relief denied: arrangements for change of control
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Relief denied
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INHERITANCE TAX
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- Grant of lease for less than market value as a gift/transfer of value
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Gift with reservation of benefit
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- Donor able to occupy or enjoy rights in relation to gifted land other than for full consideration: deemed gift with reservation
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- If T disposes of land by way of gift and later there is a right, interest or arrangement, to which T/T's spouse is a party, that allows the donor to occupy all or part of the land or enjoy some right in relation to it, gift is treated as subject to a reservation.
- Attention is not on donor's spouse's occupation/enjoyment but whether they have rights etc. that enables the donor to occupy/enjoy.
- Intended to block 'carve-out' schemes by focussing attention on donor's occupation/enjoyment.
- Exceptions:
- Donor can only occupy/enjoy the right in return for full consideration.
- Right/arrangement does not and cannot prevent the enjoyment of the land to the entire exclusion/virtually entire exclusion of the donor.
- Right/arrangement only entitle the donor to occupy upon the ending of the interest gifted.
- Rights or interests granted/acquired more than 7 years prior to gift. '14-year planning' possible.
- Where the gift is the creation of a lease with a deferred start date (reversionary lease), and the donor owned the interest out of which the lease granted for more than 7 years, HMRC accept that the 7 year let out applies (because the donor occupies under an interest held for more than 7 years), but say POAT will apply (IHTM14360).
- HMRC regard reversionary lease schemes as DOTAS-able.
Legislation: FA 1986, s.102;
Cases:
HMRC manuals: IHTM14360;
Commentary: McCutcheon 7-103;
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