Revenue Note for Guidance

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Revenue Note for Guidance

Section 52 Charging of duty on leases, etc.

Summary

This section limits the amount of duty chargeable on certain leases or agreements to lease.

Details

(1) A lease or agreement to lease or a letting is not to be charged with duty in respect of—

  • any penal rent (a penal rent is any additional rent reserved in case the lessee commits a breach of the covenants in the lease).

Example

A grants a lease of his premises for 5 years to B in consideration of B paying him €500 per month on the fifth day of every month. The terms of the lease provide that if B is more than 3 days late in paying the monthly rent an additional €50 per month will become due and payable immediately. The chargeable consideration does not include the penal rent of €50 per month.

  • any consideration which is expressed to be the surrender or abandonment of any existing lease or agreement to lease of the same property.

Example

A, a tenant under an unexpired lease, agrees to surrender his lease in consideration of the grant to him of a new lease of the same property but for a longer period. The new lease will only attract duty on any rent or premium payable under it but not in respect of the value of the lease surrendered by A.

(2) Where a lease is made for a consideration which is chargeable with ad valorem duty and for a further consideration which consists of a covenant by a tenant to substantially improve or make additions to the property demised, such further consideration is not to attract stamp duty.

Example

A grants a lease to B of a shop premises for a term of 3 years at an annual rental of €4,000 p.a. As part of the agreement B undertakes to carry out certain specified building works to the premises. Stamp duty is chargeable on the rent but not in respect of the cost of the building works to be undertaken by B.

Where a lease is made for a consideration which is chargeable with ad valorem duty and for a further consideration which consists of a covenant relating to the subject matter of the lease, such further consideration is not to attract stamp duty. (See also section 43.)

(3) Subsection (2) does not apply in respect of any further consideration in the lease consisting of a covenant which if it were contained in a separate deed would be chargeable with ad valorem duty. The lease is chargeable with duty in respect of the covenant under section 7.

(4) Where an instrument (Instrument A) has been stamped as a lease and has rent reserved by it any other instrument (Instrument B) which makes additional rent payable under Instrument A is also to be chargeable as a lease but only in respect of the additional rent payable. This provision, which is a relieving one, is effectively redundant since the abolition in 19921 of the “BOND, COVENANT, or INSTRUMENT of any kind whatsoever” head of charge.

The subsection, when it did apply, only applied to increases in rent which were not provided for in the lease (Instrument A).

Example

A leases her shop to B for 35 years from 1 February, 1990, at a rent of £5,000 p.a. payable for the first 5 years but then subject to review at the end of the fifth year and every fifth year thereafter. At the end of the fifth year the rent is reviewed upwards to £6,000 p.a. No additional stamp duty is payable as a consequence of the upward review because the increase was provided for in the terms of the lease.

In year 9 A agrees to carry out some improvements to the shop in consideration of which B agrees to pay an annual rent of £7,000 p.a. and the lease is endorsed to that effect. The endorsement on the lease constitutes a separate instrument which was prima facie chargeable under the “BOND, COVENANT, or INSTRUMENT of any kind whatsoever” head of charge. This subsection then came into play with the effect that the endorsement became chargeable under the “LEASE” head of charge but only on the additional rent payable i.e. on £1,000 p.a. With the abolition of the “BOND, COVENANT, or INSTRUMENT of any kind whatsoever” head of charge and the stipulation in section 205(10) of the Finance Act, 1992, that an instrument which was chargeable under that head of charge will not be chargeable under any other head of charge this subsection was made redundant.

(5) The consideration is to be apportioned on a just and reasonable basis—

  • where a mixed property (e.g. a dentist using part of his or her dwelling as a surgery, farmhouse with the farm), is leased for one consideration, or
  • where the lease of a wholly residential property or a mixed property forms part of a large transaction (or series of transactions). The aggregate consideration appropriate to the larger transaction (or series of transactions) will be apportioned as between the residential element and the non-residential element comprised in the larger transaction (or series of transactions).

See examples in section 45(2).

1 Section 205(6) of the Finance Act, 1992.

Relevant Date: Finance Act 2014