Grant of a Lease — SQE1 practice question

A solicitor completes the grant of a seven-year lease of a shop at a rent that produces a modest liability to stamp duty land tax. The file is closed and the land transaction return is overlooked. It is filed, with the tax, four months after completion. The tenant's bank has since asked the tenant to confirm that its lease is in order, and the tenant is anxious that the delay may have cost it the lease.

Which of the following best describes the effect of the late filing?

Option A. Incorrect answer. The lease is voidable at the instance of HM Revenue & Customs, which may set the grant aside.
Option B. Correct answer. The lease remains valid, but interest runs on the tax and the penalty rises with the length of the delay.Correct
Option C. Incorrect answer. The lease remains valid, and a penalty of £100 is due however long the return is delayed.
Option D. Incorrect answer. The lease remains valid, and no penalty arises because the tax itself was paid in full when the return was eventually filed.
Option E. Incorrect answer. The lease remains valid, but the tenant may be prosecuted once a return is more than three months late.

Why

The correct answer is B. A late land transaction return is a matter between the tenant and HM Revenue & Customs; it has no effect on the lease, which was validly granted at completion. The return was due within 14 days of the effective date. The flat-rate penalty is £100 where the return is delivered within three months of the filing date and £200 where it is later, as here, with a further tax-geared penalty if a return is more than twelve months late (Finance Act 2003, Sch 10). Interest also runs on the tax from the date it fell due until it is paid.

A is incorrect because HM Revenue & Customs collects tax, interest and penalties; it has no power to undo the grant of a lease. C is incorrect because the £100 figure covers only the first three months; this delay has taken the penalty to the higher flat rate. D is incorrect because the penalty is for the late return and is due whether or not the tax was paid when the return was eventually delivered. E is incorrect because failure to deliver a return on time attracts civil penalties, not prosecution.

Why