McGrigors LLP has issued a warning to commercial property tenants of additional charges which may arise this winter under Stamp Duty Land Tax (SDLT) legislation.

From 1 December 2008, tenants with particular rental agreements could be subject to increased taxes payable to HMRC if their lease was granted on or after 1 December 2003.

SDLT could affect those whose lease rents suffer an ‘abnormal’ rent increase – that which has increased by more than 20 per cent a year since the date it was last set.

SDLT may also apply to tenants with ‘uncertain rents’, such as rents based on turnover or without a fixed figure. This is common practice for retail tenants in shopping centres, as well as windfarms and mineral leases. In such cases, tax will have been paid based on an initial rental estimate at the beginning of the lease. However, if, five years later, these predictions have proved inaccurate, tenants could be confronted with an additional tax bill.

Alan Cook, a partner in McGrigors’ real estate team, says a 20 per cent annual growth rate is not as implausible as tenants may assume: “It’s true that this rule was designed to catch out those who may have used an artificially low rent in the first five years of the lease for tax avoidance purposes, or to ensure that HMRC is not penalised because initial estimates of rents were unrealistically low. However, there are clearly various instances where innocent increases in the rent could have unexpected tax implications. Tenants of leases who could be affected by these rules should obtain advice on the possible tax hit and on the related duties to report circumstances to HMRC.