Impact of the forthcoming VAT increase on SDLT

As everyone is no doubt aware, the standard rate of VAT will increase to 20% with effect from the 4 January 2011.  It has until now been slightly unclear what effect this might have on leases already in existence where VAT is payable on the rent.  Since SDLT is calculated on the VAT inclusive amount of the rent (thanks HMRC - nothing like being taxed on tax eh!!) any change in the VAT rate is theoretically notifable to the Revenue.

The Birmingham Stamp Office has advised that the requirement to review the SDLT calculation for leases with variable or uncertain rent (by virtue of being subject to VAT and there being possible fluctuations in the VAT rate) at the earlier of the end of the fifth year of the term or when the rent for the first five years of the terms becomes ascertained, is modified so that the review date will always fall at the end of the fifth year of the term.

Essentially, what this means that where the rent review date occurs before 4 January 2011, the 4 January 2011 VAT rate increase can be ignored. Only leases granted after 3 January 2006, for which this review date falls on or after 4 January 2011 will need to take the VAT increase into account.

There is a 30 day deadline from that review date to pay any additional SDLT due and file a further return.