Learning the Law: Stamp Duty Land Tax on farm business tenancies

Stamp Duty Land Tax ("SDLT") can be a thorny issue when it comes to dealing with agricultural tenancies. Following completion of a farm business tenancy ("FBT") it is important to establish whether an SDLT return needs to be submitted, whether SDLT is payable (a return sometimes has to be submitted even where no money is due), and if so, how much.

When is an SDLT return not required?

A Stamp Duty Land Transaction Return needs to be submitted when a new lease (including an FBT) is entered in to unless:

  • The lease is for a term of less than 7 years and the chargeable consideration under the lease is below the relevant SDLT threshold; OR

  • The lease is for a term of 7 years or more, and:

    • any premium payable under the lease is less than £40,000.00; AND

    • the annual rent under the lease is less than £1,000.00

Calculating the SDLT payable – Fixed term FBT
For a fixed term FBT, the same rules apply as for any other lease - SDLT will be payable if the "Net Present Value" (NPV) of the FBT exceeds £150,000.00 (being the non-residential Stamp Duty threshold).  The NPV is established based on a calculation of the premium payable under the lease (if any) plus the value of the rent over the term of the lease. The best way to establish this is to use the HMRC SDLT calculator, which allows the relevant information to be inputted and then calculates the NPV.  Stamp Duty will be payable within 30 days of completion of the FBT.

If an FBT contains residential property (for example a farmhouse or cottages) as well as agricultural land, non-residential rates should still apply as the transaction will likely be deemed to be "mixed use" (with residential and non-residential elements). It should be noted, however, that HMRC are increasingly reviewing returns submitted for "mixed use" transactions; to qualify for mixed use status it is important that any land let with a dwelling cannot be deemed simply to be "ancillary" to the residential element of the transaction. In a situation where the land is let under an FBT, "mixed use" should be quite straightforward to establish.

Periodic Tenancies

The SDLT treatment of annual periodic FBTs is less clear cut. Under previous HMRC guidance, a periodic tenancy had to be viewed as a fixed term one year tenancy in the first instance, being reviewed and reassessed for SDLT each year it rolled over. This meant that an additional return and payment may have been required each year the tenancy continued.

Paragraph 2 of Schedule 1 to the Finance Act 2013 amended these requirements under the Finance Act 2003. The position is now that any additional tax which may need to be paid under a periodic tenancy, which rolls over beyond its initial term, does not need to be paid (and nor does an updated Stamp Duty Return need to be submitted) until the very end of the tenancy. Stamp Duty will be payable within 30 days of the date the FBT terminates.

Whilst in some senses this new position is useful as it means that only one additional Stamp Duty Return and payment needs to be handled (rather than the position being required to be reviewed every year), tenants may be liable to pay a significant amount in SDLT when the tenancy eventually comes to an end, particularly if it has rolled over for many years.

Careful consideration should therefore be given when an annual periodic FBT is proposed or where a fixed term FBT is intended to roll over into a statutory annual periodic FBT at the end of the fixed term and that periodic tenancy is anticipated to last a number of years. Tenants will need to work out at what stage an SDLT return will be required and when the SDLT threshold is likely to be reached. Just before SDLT becomes due, it may be worth the parties considering a surrender and re-grant of the FBT to start the clock running again. From a landlord's perspective the point at which a tenant might want to sign up to a new FBT to avoid SDLT might be a good opportunity for the negotiation of some concession. If the new tenancy option is not appropriate, the tenant will need to budget for any SDLT, which is payable at the end of the term.

Penalties

It is a criminal offence not to pay SDLT if it is due. Late payment attracts interest and a penalty ranging from 10% of the duty capped at £300 for a delay of up to 12 months to 30% of the duty for a delay of more than 24 months. For delays of 12 months or more, the penalty rate may be higher if there is evidence that the failure to submit documents for stamping was deliberate. The more serious the reason, the greater the penalty can be, calculated as a percentage of the unpaid duty.