# LBTT6011 - Tax due on the rent

LBTT guidance on calculating the tax due on the rent in a land transaction involving a lease.

The tax chargeable for the rental element of a lease is determined by calculating the tax that is due on the rent using the net present value (‘NPV’) of the rent payable over the term of the lease.

The calculation of the NPV of the rent has three elements.

The first element is the temporal discount rate. The temporal discount rate is set in legislation at 3.5%.  The effect of applying the rate is to calculate the value today—the present value—of rents that will be paid in the future. It is important to remember that the beginning of the period this calculation runs from is the start of the period of the lease. This may not be the present but a time in the future.

LBTT(S)A 2013 schedule 19 paragraph 7

The second element of the calculation is the term of the lease.

The third element is the amount of rent payable. Once the term of the lease and the rent payable have been ascertained or estimated (if the actual rent is not yet known), and remembering that any VAT chargeable must be included in the rent calculation), a statutory formula is used to calculate the NPV of rental payments. The tax rates and bands are then applied accordingly to work out the tax due on the rent. The LBTT tax calculator for lease transactions will help work this out. This calculator is for reference purposes only.

LBTT(S)A 2013 schedule 19 paragraphs 3-6

### Tax due on the rent for linked transactions

There is a similar calculation involved for a lease that is one of a number of linked transactions. It uses the same formula to calculate the total of the net present values of the rent payable over the terms of all the leases. The tax rates and bands are then applied to that total to work out the total tax chargeable in respect of rent but using only one nil rate band for all of the leases.

To calculate the tax chargeable for each individual lease, the total tax chargeable in respect of rent is multiplied by the net present value of that lease expressed as a proportion of the total net present value of all the leases in the linked transactions.

LBTT(S)A 2013 schedule 19 paragraph 5

LBTT6011