How rent is taxed
Add up the rent for every year of the lease, discounting each year by 3.5%. The total is the net present value (NPV). Tax is 1% of the NPV above the threshold (2% above £5 million in England, £2 million in Scotland and Wales).
Example
£50,000 a year for 10 years, no premium, England: NPV £415,830, so tax is 1% of £265,830 = £2,658.
Complications
- Rent reviews in the first five years and turnover rents mean an estimate first, then a later return
- VAT counts if the landlord has opted to tax
- In Wales, an upfront payment (premium) loses its 0% band if the relevant rent is £13,500 a year or more (£9,000 for transactions before 4 February 2021). England has had no equivalent rule since March 2016.
- Scotland requires further returns every three years for many leases