Ongoing Obligations

(SDLT and Leases)

Comment: The SDLT obligations for leases with variable or uncertain rent require careful estimation and adjustments based on actual rent figures. This ensures correct tax payment and potential refunds.

Key Points:

  • Initial Estimate: Estimate rent for SDLT return.
  • Amendments: Adjust SDLT once actual rent is known.
  • Further Returns: Submit additional returns if rent exceeds estimates.
  • Overpayment Claims: Claim refunds if actual rent is less than estimated.

Main Principles:

  • Estimate Accuracy: Ensure accurate initial rent estimates.
  • Regular Monitoring: Track rent adjustments regularly.
  • Timely Submissions: Submit returns and amendments promptly.
  • Compliance: Follow SDLT regulations to avoid penalties.

SDLT Liability for Variable or Uncertain Rent

(SDLT and Leases>Ongoing Obligations)

➤ If rent is uncertain, SDLT is initially estimated, later amended when actual rent is known, potentially requiring extra payments or refunds.

When a lease is granted with variable or uncertain rent for the first five years (e.g., rent depending on business performance or scheduled rent reviews), the SDLT (Stamp Duty Land Tax) liability cannot be definitively determined until the uncertainty is resolved. Here’s an expanded explanation with a new example:

Key Points:

Initial Estimate:

  • Requirement: When completing the initial SDLT return, a reasonable estimate of the rent must be made based on available information.
  • Adjustment: The SDLT return should be amended once the actual consideration is finally determined, reflecting the accurate rent amounts.


  • Determining Rent: Once the rent for the first five years is known, the deemed rent for the remainder of the lease can be accurately calculated.
  • Further Return: If the actual rent exceeds the initial estimate, a further return is required, and additional SDLT must be paid.
  • Claiming Overpayment: If the actual rent is less than the estimate, an amended return can be submitted to claim repayment of any overpaid SDLT.


  • On March 1, 2022, Emily entered into a ten-year lease for a retail space. The initial annual rent is set at £20,000 but includes a clause that adjusts rent based on the store’s sales performance. The lease specifies that rent will be reviewed and potentially increased every two years based on sales figures.

SDLT Implications:

Initial Estimate:

  • Estimate Calculation: Emily and her advisors estimate the rent based on projected sales, resulting in an estimated annual rent of £25,000.
  • SDLT Return: Emily submits the initial SDLT return based on this estimate. SDLT is calculated and paid on the estimated rent of £25,000.

First Rent Review (March 1, 2024):

  • Rent Adjustment: After the first two years, actual sales figures indicate that the rent should increase to £30,000 annually.
  • Further Return: Emily must submit a further SDLT return reflecting the increased rent. Additional SDLT is calculated on the difference between the initial estimate (£25,000) and the new rent (£30,000).

Second Rent Review (March 1, 2026):

  • Rent Adjustment: The second review, based on continued strong sales, increases the rent to £35,000 annually.
  • Further Return: Another further return is submitted, and additional SDLT is paid based on the updated rent figure.

Final Adjustment (March 1, 2032):

  • Lease End and Adjustment: At the end of the ten-year lease, the total rent paid is reviewed.
  • Overpayment Claim: If the actual rent paid over the ten years is less than what was estimated in the SDLT returns, Emily can submit an amended return to claim a refund for any overpaid SDLT.

Practical Steps for Lessees:

  1. Accurate Initial Estimate: Work with financial and legal advisors to make a reasonable initial estimate of the rent based on all available information.
  2. Monitor Rent Reviews: Keep detailed records of sales and rent adjustments to ensure accurate reporting and compliance with SDLT obligations.
  3. Timely Submissions: Ensure that further returns are submitted promptly after each rent review, along with any additional SDLT payments.
  4. Claim Overpayments: If the actual rent turns out to be less than estimated, promptly submit an amended return to claim any overpaid SDLT.

Example: Variable or Uncertain Rent

(SDLT and Leases>Ongoing Obligations)

➤ For variable rent leases, submit SDLT returns based on estimated rents and then adjust with further returns or amendments if actual rents differ, ensuring timely submissions and accurate revenue tracking.


  • Date: On April 1, 2023, Maria grants John a 15-year lease for a commercial property.
  • Rent Terms: The initial rent is set at £12,000 per year. However, from Year 3 onwards, the rent will be calculated as 5% of the business’s annual revenue if this amount exceeds the fixed rent.


Initial SDLT Return:

  • Deadline: By April 15, 2023, John must submit an SDLT return based on the fixed rent of £12,000 for Years 1 and 2.
  • Estimated Rent for Year 3: John should estimate the rent for Year 3. Assuming the business revenue will increase, he estimates the rent to be £18,000.
  • Return Submission: The SDLT return should include the estimated rent figure.

Further Actions:

  • Determining Actual Rent for Year 3: At the end of Year 3, the actual rent based on 5% of the business’s annual revenue is calculated. Suppose the revenue-based rent is determined to be £22,000.
  • Submit a Further Return:
    • Action: Since the actual rent of £22,000 exceeds the initial estimate of £18,000, John must submit a further SDLT return.
    • Additional SDLT Payment: John needs to pay additional SDLT on the excess amount of £4,000 (£22,000 – £18,000).
  • Amend Return for Overpayment:
    • Scenario: If the revenue-based rent had been lower than the estimate, say £16,000, John could amend the SDLT return.
    • Action: John would claim a repayment of any overpaid SDLT, reflecting the difference between the estimated and actual rent amounts.

Expanded Example:

Initial Actions:

Lease Agreement: On April 1, 2023, Maria grants John a 15-year lease for a commercial property.

  • Fixed Rent: £12,000 per year for the first two years.
  • Variable Rent: From Year 3, rent is 5% of annual revenue if this is higher than £12,000.

Initial SDLT Return:

  • Submission Date: John must submit the SDLT return by April 15, 2023.
  • Calculation:
    • Years 1 and 2: SDLT is based on the fixed annual rent of £12,000.
    • Year 3 Estimate: John estimates the rent will be £18,000 based on projected business growth.
  • Return and Payment: John includes these figures in his SDLT return and pays the calculated SDLT amount.

Ongoing Obligations:

Year 3 Rent Calculation:

  • Revenue Calculation: At the end of Year 3, the business’s annual revenue results in a rent of £22,000 (5% of annual revenue).

Further SDLT Return:

  • Exceeds Estimate: Since the actual rent (£22,000) exceeds the estimate (£18,000), John must:
    • Submit Further Return: File an additional SDLT return.
    • Pay Additional SDLT: Calculate and pay SDLT on the additional £4,000.

Amendments for Overpayment:

  • Lower Revenue Scenario: If the actual revenue had resulted in a rent of £16,000:
    • Amend Return: John would amend the initial SDLT return.
    • Claim Refund: He would claim a refund for the overpaid SDLT, based on the difference between the estimated (£18,000) and actual (£16,000) rents.

Key Points:

  • Timely Submissions: It is crucial to submit SDLT returns promptly, reflecting both initial and adjusted estimates.
  • Revenue Monitoring: Accurate tracking of business revenue ensures proper SDLT calculations and compliance.
  • Adjustments and Refunds: Tenants should be aware of their rights to amend returns and claim refunds for overpaid SDLT when actual rents differ from estimates.

Detailed Steps:

  1. Initial SDLT Return:
    • Estimate: Calculate a reasonable estimate of the variable rent based on available data and expected business performance.
    • Filing: Submit the SDLT return by the deadline, using the estimated figures for variable rent.
  2. Review Period:
    • Monitor Rent Changes: Keep track of actual rent payments and business performance to determine the exact rent amounts for the variable period.
    • Adjust Estimates: Be prepared to adjust the initial estimates based on actual business results.
  3. Submit Further Returns:
    • Exceeding Estimates: If actual rent exceeds the estimated rent, calculate the additional SDLT due and submit a further return.
    • Pay Additional SDLT: Ensure the additional SDLT is paid within the required timeframe.
  4. Amend Returns for Overpayment:
    • Lower Actual Rent: If actual rent is lower than the estimated rent, submit an amended return.
    • Claim Repayment: Claim a repayment of any overpaid SDLT.


Rent Review within Five Years of Final Execution

(SDLT and Leases>Ongoing Obligations)

➤ SDLT calculations for leases are based on when substantial performance occurs and rent isn’t considered variable/uncertain with normal five-year reviews or if specified clearly for final quarter reviews in the fifth year.

Leases that commence with a rent review within the first five years can be treated differently for SDLT (Stamp Duty Land Tax) purposes. Here are the key points and examples to illustrate these situations:

Key Points:

  • Effective Date: The term of the lease is treated as commencing on the date of substantial performance.
  • Normal Rent Reviews: Leases with normal five-yearly rent reviews are not treated as having variable or uncertain rent under the new rules.

Example: Rent Review within Five Years

Scenario: Sarah enters into an agreement for a 12-year lease of a studio space, taking possession on 1 December 2022. The lease is finally executed on 15 March 2023 with rent reviews on 1 December 2027 and 1 December 2032.

Action: Under the new rules, the term of the lease is treated as commencing on 1 December 2022. The first rent review is more than five years after this date, so the rent is not regarded as variable or uncertain.

 Rent Review in the Final Quarter of Year 5

Special care is needed when the first rent review falls in the final quarter of the fifth year of the term.

Key Points:

  • Precise Wording: The lease must specify that the first rent review is due five years after a specified date within the three months before the lease began. Otherwise, the lease may be treated as having variable or uncertain rent.

Example: Rent Review in Final Quarter of Year 5

Scenario: Tech Innovators Ltd leases an office space from Business Park Inc for ten years starting from 1 February 2023. The lease provides for a rent review on 15 January 2028.

Action: If the lease states “the rent review shall occur five years after 15 January 2023,” it will not cause the rent to be regarded as variable or uncertain. This ensures SDLT obligations are based on the starting rent alone, with no further action necessary at the rent reviews.

Effective Date and Substantial Performance

  • Substantial Performance: This term refers to the date when the tenant takes possession or starts paying rent, whichever comes first. This date is critical for SDLT calculations as it marks the commencement of the lease term.
  • Impact on Rent Reviews: For leases with rent reviews within the first five years, the initial period before the first review is crucial. If the review happens after five years from the substantial performance date, the rent is not considered variable or uncertain.

Normal Rent Reviews

  • Definition: Normal rent reviews typically occur at regular intervals, such as every five years. These are standard in commercial leases to adjust rent based on market conditions.
  • SDLT Treatment: Under the new rules, normal five-yearly rent reviews do not cause the rent to be classified as variable or uncertain, simplifying SDLT obligations.

Precise Wording for Rent Reviews in Final Quarter of Year 5

  • Critical Timing: When the first rent review is scheduled in the final quarter of the fifth year, the exact wording of the lease is vital. It must clearly state the review’s timing relative to the lease start date.
  • Avoiding Uncertainty: To avoid SDLT complications, the lease should explicitly state that the rent review occurs five years after a specified date within the three months preceding the lease commencement. This clarity ensures the rent is not treated as variable or uncertain.

 Practical Implications

  1. Lease Drafting: Careful drafting of lease agreements can prevent future SDLT issues. Clear terms regarding the timing of rent reviews help ensure compliance with SDLT rules.
  2. Tenant and Landlord Awareness: Both parties should be aware of the implications of rent review clauses, especially within the first five years. Proper understanding can help avoid unexpected tax liabilities.
  3. SDLT Calculations: Accurate SDLT calculations depend on the precise wording and timing of lease clauses. Ensuring that lease terms are clear and align with SDLT requirements is crucial for both landlords and tenants.

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This Article Written By Nick Garner
Founder Stamp Duty Advice Bureau
Author of Stamp Duty Land Tax Guide
For Property Investors.