SDLT Obligations And Liabilities

(SDLT and Leases)

Comment: Entering into a new lease can trigger Stamp Duty Land Tax (SDLT) obligations at several stages. Here’s what you need to know.

Key Points:

  • SDLT obligations may arise when a new lease is first agreed upon and again when it is formally executed.
  • Payments made before the lease officially starts might be treated as premiums.
  • For leases over seven years, SDLT returns are required if the annual rent is over £1,000 or the premium exceeds £40,000.

Main Principles:

  • Substantial Performance: SDLT obligations can occur when the lease agreement is acted upon, even before the final lease execution.
  • Premium vs. Rent: Payments made before the lease commencement can be considered as a premium, triggering SDLT.
  • Lease Renewal Exceptions: Certain lease renewals within the SDLT regime may have exceptions.
  • SDLT Returns: Leases of seven years or more require SDLT returns if they meet specified financial thresholds.

New Lease Considerations

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ Entering a new lease can trigger SDLT obligations at several stages, especially when payments or actions occur before the lease formally begins.

Stamp Duty Land Tax (SDLT) on New Leases

Entering into a new lease can trigger Stamp Duty Land Tax (SDLT) obligations under the Finance Act 2003, section 43(3)(a).  

  • Initial Agreement for Lease: It’s common for parties to first sign an agreement for lease, with the final lease being executed later once all details are settled.
  • Substantial Performance: The agreement might be acted upon before the final lease is executed, such as through payment of rent or tenant access to the premises. The general SDLT concept of ‘substantial performance’ applies here (see Finance Act 2003, section 44(7)). This means SDLT obligations may arise when the agreement is acted upon and again when the definitive lease is executed. For detailed examples, see sections 4.112 and 6.74 of the relevant guidance.

Payments Before Lease Commencement

Amounts paid before the lease officially commences (or is treated as commencing) cannot be regarded as rent, even if labelled as such. Key points include:

  • Premium vs. Rent: Any such amount will be treated as a premium if it is truly consideration for the lease. This situation might occur if negotiations between the landlord and potential tenant are delayed, allowing the landlord to demand ‘rent’ for an earlier period before the tenant occupies the property or signs the lease. 
  • Notional Lease: More often, the payment of such an amount or early possession of the property will trigger the start of a notional lease. The payment will then be treated as rent for this notional lease.

Exceptions on Lease Renewal

  • Renewal of Existing Leases: There is an exception for the renewal of a lease originally entered into within the SDLT regime.  


When entering into a new lease, be aware of the potential SDLT obligations at various stages, including the initial agreement and the execution of the final lease. Payments made before the lease commences may be treated differently based on their nature and timing, often triggering the commencement of a notional lease. Understanding these nuances is crucial for accurate compliance and financial planning.


New Lease for Seven Years or More

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ A new lease for seven years or more requires an SDLT return if the annual rent is over £1,000 or the premium is over £40,000, even if the SDLT payable is zero.

Key Points

  • Non-Lease Transactions: No requirement to file an SDLT return if the chargeable consideration is less than £40,000 (Finance Act 2003, s 77A(1)).
  • Lease for Seven Years or More: Exemption from making a return applies only if the annual rent is less than £1,000.
  • Historical Context: Before 17 March 2016, a non-residential lease with an annual rent of £1,000 or more required an SDLT return due to the absence of a ‘zero rate band’ for the premium.
  • Rule Abolishment: Post 17 March 2016, the rule requiring a return for leases with rent above £1,000 per annum seems illogical.

Example 1: Rent and Premium Below Threshold, Notifiable

On 15 March 2023, Cassandra enters into a 200-year lease as a tenant on a piece of commercial property at a yearly rent of £6,000, with revisions every three years based on the Consumer Price Index. A premium of £30,000 is payable under the lease. The tenant has the right to terminate the lease at any time after 15 March 2050.

SDLT Considerations:

  • Increases in rent according to the Consumer Price Index are ignored for SDLT purposes, treating it as a lease at a fixed rent of £6,000 per annum.
  • The Net Present Value (NPV) of the rent is £145,000, which is below the £150,000 threshold, so no SDLT is payable on the rent.
  • No SDLT is payable on the premium as it is below the £150,000 threshold and the £40,000 threshold for non-lease transactions.
  • Despite these thresholds, an SDLT return must be submitted within 14 days of execution or substantial performance of the lease since the annual rent exceeds £1,000.

Example 2: Lease with Termination Rights

On 10 June 2024, Alexander signs a 100-year lease as a tenant for a residential property with an annual rent of £800, subject to an increase every two years based on the Housing Price Index. A premium of £45,000 is paid at the start of the lease. The tenant can terminate the lease after 10 June 2054.

SDLT Considerations:

  • The Housing Price Index adjustments are ignored, treating it as a lease with a fixed rent of £800 per annum.
  • The NPV of the rent is calculated at £90,000, well below the £150,000 threshold, resulting in no SDLT payable on the rent.
  • The premium of £45,000 is above the £40,000 threshold for non-lease transactions, so an SDLT return is required.
  • Since the annual rent is less than £1,000, no SDLT return would be required if only considering the rent. However, the premium necessitates the return filing within 14 days of lease execution or substantial performance.

New Lease for Less Than Seven Years

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ For leases under seven years, an SDLT return is required if the chargeable consideration exceeds the zero-rate bands, with the calculation based on the premium and NPV of rent.


When purchasing leasehold property with a lease term of less than seven years, Stamp Duty Land Tax (SDLT) is not applicable if the chargeable consideration is below the residential or non-residential SDLT threshold.

Chargeable Consideration

Chargeable consideration includes:

  • Any premium: The upfront cost for securing the lease.
  • Net present value (NPV) of any rent: Calculated based on the average rent over the life of the lease.
  • Consideration for assignment or surrender: The amount paid for taking over or giving up an existing lease.

You can use the Stamp Duty Land Tax calculator to determine the net present value.

Notification Requirements

A lease with a term of less than seven years must be notified to HMRC only if the consideration exceeds the relevant zero-rate band.

Zero-Rate Bands

For residential property, the zero-rate bands are:

  • Up to £250,000: Zero rate
  • £250,001 to £925,000: 5%
  • £925,001 to £1.5 million: 10%
  • Above £1.5 million: 12%

For the NPV of rent, the zero-rate band applies up to:

  • Residential property: £250,000
  • Non-residential property: £150,000


Rent and Premium Below Threshold, Not Notifiable

  • On 30 October 2021, Emma grants Lucas a six-year lease of a house (single residence) with:
    • Premium: £30,000 (within zero-rate band)
    • Annual rent: £10,000 (NPV below £125,000 threshold)
  • Since both premium and NPV of rent are below the thresholds, no SDLT return or notification is required.

Liability on NPV of Rent with Pre-Lease Rent Payment

  • On 1 March 2021, Daniel agrees to grant Sarah a five-year lease of a shop for:
    • Annual rent: £50,000, payable quarterly in advance
  • Due to a dispute, the lease execution is delayed until 1 May 2021, making it a 4-year, 11-month lease.
  • Sarah pays the first rent instalment for 1 April to 30 June 2021 on 1 May 2021, considered a premium for the lease:
    • Pre-lease rent: £4,167 (below £150,000 threshold, no SDLT on this)
    • NPV of rent: £222,244
    • SDLT payable: £722 on the rent
  • Sarah must file a land transaction return and pay the SDLT due by 15 May 2021.


Licence to Occupy and Informal Arrangements

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ A licence to occupy land is not subject to SDLT, but an agreement granting exclusive occupation may be, and legal advice is recommended if uncertain.

Licence to Occupy Land

A licence to occupy land is not considered a ‘chargeable interest’ under the Finance Act 2003, Section 48(2)(b). Consequently, no Stamp Duty Land Tax (SDLT) obligations arise when entering into or terminating a licence. However, it is important to note that merely labelling an agreement as a ‘licence’ does not determine its nature. If there is any uncertainty, it is advisable to seek appropriate legal advice. A tenancy granting exclusive occupation of a property exceeds the scope of a licence and may be subject to SDLT.

Sidenote: A licence to occupy land grants a person permission to use and occupy property without conferring the exclusive possession typical of a lease. According to the Finance Act 2003, Section 48(2)(b), such licences are not considered ‘chargeable interests,’ meaning they do not trigger Stamp Duty Land Tax (SDLT) obligations upon entering or terminating the agreement. It’s crucial to understand that the designation of an agreement as a ‘licence’ does not solely determine its legal nature. If the agreement effectively provides exclusive occupation of the property, it may actually constitute a tenancy and thus be subject to SDLT. In cases of uncertainty, seeking legal advice is recommended to ensure proper classification and compliance with tax obligations.

Tenancy Creation and Implications

  • Written Agreement: Typically, a transaction creating a tenancy is formalised in writing. However, a tenancy can also be implied by the actions of the parties involved.
  • Tenancy at Will: No SDLT liability should arise from a tenancy at will, as per Finance Act 2003, Section 48(2)(c)(i). Refer to SDLTM 10050 for more details.
  • Periodic Tenancy: Over time, a tenancy at will may evolve into a periodic tenancy, which could potentially incur SDLT charges.
  • Pre-December 1, 2003 Arrangements: If the arrangement commenced before December 1, 2003, when SDLT was introduced, no SDLT obligations should arise unless and until the arrangement is varied. It is recommended to seek legal advice to determine the status of such arrangements.

SDLT and Partnerships

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ For partnerships, property ownership status and SDLT liability depend on specific circumstances, requiring legal advice to determine the true nature of interest in land.

HMRC’s draft guidance on SDLT and partnerships initially suggested that if a partnership informally occupied a property owned by a partner, the property should be considered as belonging to the partnership rather than simply being let to it. However, an article in SDLT Technical News 5 (August 2007) presented a more reasonable view, stating that the status of the property would depend on the specific facts of each case. The final guidance on SDLT and partnerships (SDLTM33000 et seq) does not address this issue explicitly.

Key Points to Remember

  • Legal Advice: Always seek appropriate legal advice to determine the true nature of an interest in land.
  • Implied Tenancy: A tenancy can be implied through the actions of the parties, even without a written agreement.
  • No SDLT on Tenancy at Will: Tenancies at will generally do not incur SDLT, but they can evolve into periodic tenancies that do.
  • Historical Arrangements: Pre-December 1, 2003 arrangements are generally exempt from SDLT unless varied.
  • Partnership Occupation: The ownership status of properties occupied by partnerships depends on the specific circumstances of each case.


Lease for an Indefinite Term and Holding Over

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ A periodic tenancy is treated as a one-year lease initially, with each one-year extension triggering SDLT obligations that must be addressed within 14 days after each year ends.

Periodic Tenancy Overview

A periodic tenancy, which continues for successive periods until the tenant notifies the landlord of their intent to end the tenancy, is a common example of a ‘lease for an indefinite term’ (Finance Act 2003, Schedule 17A, paragraph 4). Whether or not this type of lease is documented in writing, it is initially treated as a one-year lease if it comes into existence on or after January 1, 2004 (the introduction date of Stamp Duty Land Tax – SDLT).

Yearly Extension and SDLT Obligations

  • First Year Treatment: Initially treated as a lease for one year.
  • Second Year Onward: If it continues beyond the first year, it is treated as having been a lease for two years from the start.
  • Subsequent Extensions: At the start of each successive year, it is treated as having been a lease for one year longer than at the beginning of the previous year.

Each one-year extension triggers SDLT obligations, which must be addressed within 14 days after the end of the previous deemed fixed period. For instance, if a lease is deemed to have a fixed period ending on June 30, 2022, but continues beyond that date, it is then considered to have a deemed fixed period ending on June 30, 2023. Any resulting SDLT obligations must be dealt with within 14 days of June 30, 2022.

Effective Date and Notification Requirements

  • Effective Date: The ‘effective date’ of the lease grant is on or after March 1, 2020, or the lease becomes notifiable on or after March 1, 2020.
  • Notifiable Transactions: If treating the lease as extended by one year makes the transaction notifiable when it was not before, the lessee must file a return within 14 days of the end of the previous deemed fixed period.
  • Tax Payable Transactions: If the one-year extension results in tax becoming payable where none was before, or additional tax is due, and the transaction has already been notified, the lessee must submit a further return within 30 days of the end of the previous deemed fixed period.

SDLT Rates and Bands

For both notification scenarios, any tax or additional tax payable is calculated using the SDLT rates and bands as of the ‘effective date’ of the lease grant.

Return and Self-Assessment

  • Return Submission: Returns must be submitted under FA 2003, Schedule 17A, paragraph 4(3) for new notifications or paragraph 4(3A) for additional tax.
  • Self-Assessment: Each return must include a self-assessment of the tax chargeable, based on the return information. The tax, or additional tax, must be paid no later than the filing deadline of the return.

These provisions ensure that leases for indefinite terms are properly documented and any tax obligations are timely met, maintaining compliance with the SDLT regulations.

Treatment of Lease Extension and SDLT Implications

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ If a lease extension incurs or increases Stamp Duty Land Tax, the tenant must file a return and pay any tax due within 14 days of the extension period ending.

Tax Implications for Lease Extensions

If extending a lease by one year results in tax becoming payable where none was due before, or additional tax being required, the lessee must submit a return within 14 days of the end of the previous deemed fixed period. This return must include:

  • A self-assessment of the tax chargeable.
  • Payment of the tax or additional tax by the filing date (FA 2003, Sch 17A, para 4(3), prior to amendment by FA 2019, s 46(8)(b)).

Fixed-Term Leases vs. Indefinite Term Leases

Leases for an indefinite term contrast with fixed-term leases. For fixed-term leases continuing after their end date:

  • SDLT obligations are postponed until 30 days after a one-year extension ends for periods beginning on or after 17 July 2013.

No Adjustment for Early Termination

If an indefinite term lease ends before a year for which SDLT has been paid, no adjustment is made. Examples include:

  • Tenant vacating the premises.
  • Transition to a fixed-term lease, which allows SDLT paid on the indefinite lease to be accounted for in the fixed-term lease calculation

Residential Tenancies and SDLT Liabilities

Typically, residential tenancies may initially not incur SDLT due to low rent. However, as the lease term extends, SDLT obligations may arise:

  • Different notification requirements exist for leases under and over seven years.
  • A lease for an indefinite term does not become notifiable just by exceeding the seven-year mark (FA 2003, Sch 17A, para 4(4A)).

Example: Lease for an Indefinite Term

Initial Tenancy Agreement

  • Date: 1 October 2015
  • Tenant: Marcus
  • Property: Commercial unit
  • Rent: Quarterly payment of £7,500 (including VAT), with annual RPI increases.
  • Termination Notice: One quarter’s notice on the due date of a rental payment.

SDLT Assessment Timeline

  1. 1 October 2015:
    • Lease treated as a one-year lease with annual rent of £30,000.
    • No SDLT due, NPV below £150,000.
  2. 1 October 2016:
    • Lease treated as a two-year lease from outset, with annual rent of £30,000.
    • No SDLT due, same as the previous year.
  3. 1 October 2017:
    • Lease treated as a three-year lease, same rent, no SDLT due.
  4. 1 October 2018:
    • Lease treated as a four-year lease, same rent, no SDLT due.
  5. 1 October 2019:
    • Lease treated as a five-year lease, same rent, no SDLT due.
  6. 1 October 2020:
    • Lease deemed to be for six years (1 October 2015 to 30 September 2021).
    • NPV of rent: £159,856, exceeding £150,000 threshold.
    • SDLT liability: 1% of £9,856 (£159,856 – £150,000).
    • Land Transaction Return due by 14 October 2020.

Termination and New Lease Agreement

  • Termination: 28 February 2021, total lease duration of five years and five months.
  • New Lease: Negotiated in January 2021, executed on 28 February 2021.
  • Rent: £15,000 plus RPI increase for six months to 28 February 2021.
  • SDLT Treatment: No refund for SDLT paid from 1 March 2021 to 30 September 2021.
  • Allowance: SDLT paid on periodic tenancy accounted for in new fixed-term lease SDLT calculation (see 6.83).
  • Return and Payment: Due by 14 March 2021 (FA 2003, s 76(1)).


Lease for an Indefinite Term and Holding Over

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ Holding over after a lease ends can trigger Stamp Duty Land Tax (SDLT) obligations, with deadlines and specific requirements varying based on the lease’s effective date and subsequent annual extensions.

Holding Over Periods

A tenant may remain in occupation after the end of a fixed-term lease, a situation known as ‘holding over’. During this time, the tenant continues to pay rent, often while a new lease is being negotiated. The specific Stamp Duty Land Tax (SDLT) consequences of holding over depend on whether the original lease was granted under the stamp duty or SDLT regimes and the terms of any new lease. This area saw helpful amendments in the Finance Act (FA) 2013, specifically in FA 2003, Schedule 17A, paragraphs 3 and 3A.

Treatment of Holding Over Periods

Holding over periods are generally treated like the second and subsequent years of a lease for an indefinite term. However, the deadlines for filing returns, or further returns, and for paying any SDLT or additional SDLT, differ. The old fixed-term lease is effectively deemed to remain in force, extending one year at a time (FA 2003, Sch 17A, para 3(2)).

Scenarios Based on Effective Date:

Effective Date Prior to 1 March 2021:

If the original fixed-term lease’s effective date is before 1 March 2021 and the lease becomes notifiable before this date:

  • If the lease was subject to SDLT, reporting and payment obligations arise for each one-year extension.
  • Prior to 15 July 2015, these obligations had to be addressed within 30 days of the start of each one-year holding over period.
  • From 15 July 2015, these obligations are postponed to 30 days after the end of each one-year period (or within 30 days of the end of the holding over period if sooner).

Effective Date On or After 1 March 2021:

If the effective date of the lease grant is on or after 1 March 2021, or the lease becomes notifiable on or after this date:

  • If the lease’s annual extension makes the transaction notifiable when it wasn’t before, the lessee must deliver a return and pay any due SDLT within 14 days after the end of the one-year extension (FA 2003, Sch 17A, para 3(3)).
  • If the transaction has already been notified but the annual extension results in tax becoming payable (or additional tax becoming due), the lessee must deliver a further return within 30 days after the end of the one-year extension (FA 2003, Sch 17A, para 3(3ZA)).

SDLT Calculation and Return Submission

For both FA 2003, Sch 17A, para 3(3) and para 3(3ZA), any tax or additional tax payable is calculated using the SDLT rates and bands as of the effective date of the fixed-term lease grant (FA 2003, Sch 17A, para 3(3ZB)). The lessee must include a self-assessment of the tax chargeable in the return, and the tax or additional tax must be paid by the filing deadline (FA 2003, Sch 17A, para 3(3ZC)).

Lease Renewals

The treatments of a lease for a fixed term may be modified if the holding over period is followed by the execution of a new lease of substantially the same premises to the same tenant. 


Airspace and Roof-Space Leases for Renewables and Telecoms

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ Leases for roof-space or airspace for renewables or telecoms are subject to SDLT, where cash premiums, rent, and benefits like reduced-rate electricity must be valued for compliance.

Leases for roof-space or airspace used for renewable energy or telecom installations are subject to SDLT like any other lease. The primary considerations include the valuation of benefits such as reduced-rate electricity, ensuring compliance with notification thresholds, and understanding that the installation of equipment does not count as consideration. Here are the key considerations:

Installation of Equipment

  • Non-Consideration: The installation of equipment such as solar panels or wind turbines is not typically regarded as consideration for SDLT purposes, even if the lease terms require it. This is due to the provisions of Finance Act 2003, Schedule 4, paragraph 10.

Cash Premium or Rent

  • Chargeable Amounts: Any cash premium or rent payable under the lease is subject to SDLT in the usual manner. The calculation follows the standard rules for lease premiums and rents.

Provision of Electricity

  • Benefit Valuation: Leases for renewable energy installations often include provisions allowing the building owner or occupier to receive electricity either for free or at a reduced rate. This benefit, considered as money’s worth, must be valued at the effective date of the lease and included as part of the premium.
  • Ongoing Supply: The ongoing supply of electricity at a reduced rate or for free does not constitute rent and therefore is not subject to SDLT as rent.

SDLT Threshold

  • Notification Threshold: According to HMRC’s guidance in Stamp Taxes Bulletin 1/2014, the value of the right to electricity often falls below the £40,000 notification threshold. In such cases, no SDLT return is required.
  • Larger Installations: For larger installations, particularly on commercial premises, the value may exceed the £40,000 threshold. It is the taxpayer’s responsibility to determine whether the threshold is exceeded and to comply with SDLT obligations.

Domestic Solar Panels

  • Homeowners: Homeowners who purchase solar panels and benefit from free electricity or receive payments for feeding electricity back into the grid are not typically involved in lease agreements. Consequently, no SDLT obligations arise for these arrangements.

HMRC Advice

  • Seek Guidance: In cases of uncertainty regarding SDLT obligations, it is advisable to seek written advice from the HMRC Stamp Duty Land Tax Office. This ensures compliance and clarifies any ambiguities.

Example Scenario

Consider a scenario where a commercial property owner leases the roof-space to a renewable energy company for the installation of solar panels. The key points would be:

  1. Installation of Solar Panels: The company instals solar panels, which under the lease terms, do not count as consideration for SDLT purposes.
  2. Cash Premium and Rent: The property owner receives a cash premium of £20,000 and annual rent of £5,000. These amounts are chargeable under SDLT rules.
  3. Electricity Benefit: The lease includes a provision allowing the property owner to receive electricity at a reduced rate. The value of this benefit is assessed at the effective date of the lease and included in the premium.
  4. SDLT Threshold: If the total value of the premium and the benefit from reduced-rate electricity exceeds £40,000, an SDLT return must be filed, and SDLT paid accordingly.

Transfer of a Lease or Agreement for Lease

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ When a lease is transferred to a new tenant without changing terms, the new tenant must pay SDLT on any consideration given, excluding regular rent and tenant obligations.

When an existing lease is transferred to a new tenant without changing the terms and conditions, SDLT (Stamp Duty Land Tax) applies similarly to any other transfer of an interest in land. Here are the critical aspects to consider:

SDLT on Consideration

  • Payment of SDLT: The new tenant must pay SDLT on any consideration given to the outgoing tenant and to the landlord, apart from ordinary rent. This includes any lump sum paid for the landlord’s consent to the transfer.
  • What Constitutes Consideration: Consideration typically includes payments made directly to the outgoing tenant and any other monetary consideration provided for the transfer.

Exclusions from SDLT Liability

  • Non-Impacting Payments: Neither the rent under the lease nor any premium paid by the outgoing tenant to the landlord affects the new tenant’s SDLT liability.
  • Tenant Obligations: The assumption of regular tenant obligations, such as property maintenance, is not considered consideration under Finance Act 2003, Schedule 17A, paragraph 17.

Agreement for Lease

  • Assignment Provisions: According to Finance Act 2003, Schedule 17A, paragraph 12B, the assignment of an agreement for lease results in the same overall SDLT liability as the lease itself. This ensures continuity and prevents double taxation.


Liabilities for the Transferee

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ The new tenant must understand the lease history, disclose unresolved SDLT obligations, file additional returns, and pay extra SDLT if rent becomes certain.

Understanding Lease History

It is important for a new tenant to fully comprehend the history of the lease they are assuming. This detailed understanding aids in identifying potential Stamp Duty Land Tax (SDLT) liabilities and obligations that may arise due to the nature of the lease or the transfer itself.

Situations Leading to Additional Obligations

Uncertain or Variable Rent

  • When the original lease agreement includes rent terms that are uncertain or variable, this can lead to additional SDLT obligations.
  • If the lease is transferred to a new tenant before the SDLT liability is fully resolved, the new tenant inherits this responsibility.
  • This responsibility includes making necessary disclosures, submitting further returns, and paying any additional SDLT once the rent uncertainty is resolved.

Key Points to Consider

  • Comprehensive Lease History: The new tenant must thoroughly review the lease’s history to identify any potential SDLT liabilities.
  • Disclosure Obligations: Any unresolved SDLT obligations due to uncertain or variable rent must be disclosed by the new tenant.
  • Further Returns: The new tenant must be prepared to file additional returns related to SDLT.
  • Additional Payments: If the rent uncertainty is resolved post-transfer, the new tenant must pay any additional SDLT required.

Case Example


In March 2023, John takes over a lease from Emma. The lease, initially granted in January 2020, included a rent review clause, making the rent variable and uncertain at the time of the grant.

Actions for John

  • Review Lease History: John must thoroughly review the lease history to understand the rent review terms.
  • Make Necessary Disclosures: If the rent review is concluded after John takes over, he must disclose the outcome and any impact on SDLT.
  • File Additional Returns: John should be ready to submit additional SDLT returns as required.
  • Pay Additional SDLT: Once the rent uncertainty is resolved, John must pay any additional SDLT due.

By understanding these obligations, the new tenant can ensure compliance with SDLT requirements and avoid any potential liabilities.


Relief Claimed on Original Grant of Lease

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ New tenants may face unexpected SDLT liabilities if prior reliefs were claimed, requiring thorough lease history review and awareness of potential SDLT on premiums and rent increases.

Unexpected Liabilities for New Tenants

New tenants may face unexpected liabilities in specific circumstances, one of which involves the claim of certain reliefs at the time the lease was originally granted.

Scenario Overview

  • Claim of Reliefs: When a lease was initially granted, if one of a specified list of reliefs was claimed, it could impact future transfers.
  • Relevant Legislation: Finance Act 2003, Schedule 17A, Paragraph 11 outlines these scenarios.

Conditions Triggering Liabilities

  • Clawback of Relief: If no event has occurred to trigger the clawback of the relief, the first transfer of the lease that does not qualify for one of the specified reliefs is treated as the grant of a new lease.
  • Calculation of SDLT: The new lease is considered for the remaining term of the actual lease and at the current rent payable by the transferee. Any rent increases between the original grant date and the transfer date are taken into account, potentially increasing the Stamp Duty Land Tax (SDLT) liability.
  • Premium Payments: SDLT is also payable on any premium paid by the new tenant to the landlord.
  • Transfer Payments: HMRC considers payments made by the new tenant to the outgoing tenant for the transfer within the charge to SDLT, similar to a straightforward lease transfer without prior relief claims. While logical, the legislative wording does not explicitly support this view.


  • Original Grant Date: January 1, 2015
  • Transfer Date: March 15, 2024
  • Rent Increase: If the rent increased from £20,000 annually at the original grant date to £25,000 at the transfer date, the SDLT calculation would consider the higher rent amount.
  • Premium: If the new tenant pays a premium of £10,000 to the landlord, this amount is subject to SDLT.
  • Outgoing Tenant Payment: Any amount paid to the outgoing tenant for the lease transfer, say £5,000, is also subject to SDLT according to HMRC’s interpretation.

Important Considerations

  • Clarity of Legislation: The interpretation by HMRC, although logical, is not clearly supported by the legislative wording, potentially leading to disputes or the need for further legal clarification.
  • Due Diligence: New tenants should conduct thorough due diligence to understand the full extent of potential SDLT liabilities, including reviewing any reliefs claimed at the original grant of the lease.

By being aware of these conditions, new tenants can better prepare for potential SDLT liabilities and avoid unexpected financial burdens.


SDLT Liability and Relief: Transferee Responsibility

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ The new tenant must pay SDLT, despite prior relief claimed by the original lessee, resulting in an effective clawback.


  • SDLT (Stamp Duty Land Tax) is generally the responsibility of the transferee (the new owner or tenant), not the original lessee who claimed the relief.
  • This distinction means that technically, this process is not a clawback but rather a modification of the normal rules for determining a purchaser’s SDLT liability.
  • In practical terms, however, these rules can result in an effective clawback of part of the relief previously claimed.

Key Points

  • Transferee Responsibility: The responsibility for SDLT lies with the new owner or tenant, not the original lessee.
  • Not a Clawback: While it appears similar to a clawback, it is technically a modification of the rules for SDLT liability.
  • Effective Clawback: Despite the technical distinction, the rules effectively lead to a clawback of the previously claimed relief, as shown in the following example.


Consider the following scenario:

  • Original Lease: John Smith took a lease on a property and claimed SDLT relief in January 2020.
  • Transfer of Lease: In June 2024, John transfers the lease to Mary Johnson.
  • SDLT Liability: Mary, as the transferee, is now responsible for SDLT based on the modified rules.
  • Effective Clawback: Although John initially benefited from the relief, the SDLT rules now require Mary to pay an amount that effectively claws back part of that relief.


  • For Original Lessees: They can initially claim SDLT relief without worrying about future liabilities.
  • For Transferees: They must be aware of the potential SDLT liability that comes with acquiring a lease that had previously benefited from relief.
  • Financial Planning: Both parties should consider the SDLT implications during negotiations and financial planning.


Applicability of Rules Over Time

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ SDLT rules on lease disposal apply at any time, so buyers should investigate liabilities and secure safeguards like warranties and indemnities.

The rules governing the disposal of a lease are not bound by any time limitations; they are applicable at any point throughout the lease’s duration. It is crucial for individuals or entities acquiring a second-hand lease to be aware of these rules and take steps to protect themselves from unexpected Stamp Duty Land Tax (SDLT) liabilities.

Important Considerations for Acquiring a Second-Hand Lease

  • Timeless Application: The rules apply irrespective of when the lease is disposed of, whether at the beginning, middle, or end of its term.
  • Due Diligence: Prospective buyers of a second-hand lease must thoroughly investigate if the lease is subject to these special rules.
  • Protection Mechanisms: To safeguard against unforeseen SDLT liabilities, consider employing the following measures:
    • Warranties: Ensure the seller provides guarantees about the lease’s SDLT status.
    • Indemnities: Secure agreements that hold the seller accountable for any future SDLT liabilities.
    • Retentions: Withhold a portion of the purchase price until it is confirmed that no SDLT liabilities exist.
    • Other Legal Instruments: Utilise any other appropriate legal measures to mitigate risks.

Key Actions for Second-Hand Lease Acquirers

  1. Investigate SDLT Implications: Conduct a thorough review to determine if the special rules apply to the lease.
  2. Seek Legal Advice: Consult with legal professionals to understand potential liabilities and protection strategies.
  3. Negotiate Safeguards: Ensure that appropriate protections such as warranties, indemnities, and retentions are included in the acquisition agreement.

Practical Example

If Jane Smith acquires a second-hand lease on July 15, 2025, she must:

  • Verify if the lease is subject to any special SDLT rules.
  • Request warranties from the seller about the lease’s SDLT status.
  • Include indemnities in the purchase agreement to cover any future SDLT liabilities.
  • Retain part of the purchase payment until the SDLT status is confirmed.

By following these steps, Jane can protect herself from unexpected financial obligations related to SDLT, ensuring a smoother and more secure transaction.


Special Rules for Lease Grants

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ Special SDLT rules for lease grants apply if certain reliefs were claimed, but can be overridden by new qualifying relief claimed by the transferee.

When granting a lease, certain special rules apply if any of the following reliefs have been claimed:

  1. Group, Reconstruction, or Acquisition Relief
  • Applies to reorganisations within a group of companies.
  • Typically involves transferring assets within the group without triggering tax liabilities.
  1. Sale and Leaseback Relief
  • Available when a property is sold and then leased back to the seller.
  • Helps in managing cash flow and freeing up capital without losing the use of the property.
  1. Charities Relief
  • Granted to leases involving charitable organisations.
  • Ensures that charities can operate with reduced financial burdens.
  1. Relief for Transfers Involving Public Bodies
  • Applicable to transactions involving governmental or public entities.
  • Supports the efficient functioning of public sector operations.
  1. Reliefs from Stamp Duty Rules (FA 2003, s 123(3))
  • Includes various reliefs carried over from the old stamp duty regime.
  • It’s crucial to review these carefully, as many listed in section 5.72 fall into this category.

Note: Extra caution is required regarding the last category, as numerous reliefs mentioned in the regulations might be applicable.

Exceptions to Special Rules

The special rules do not apply if the transfer itself qualifies for any relief listed (not necessarily the same relief previously claimed), provided the transferee claims the relief in an SDLT return. This means:

  • A new qualifying relief can override the application of special rules.
  • The transferee must actively claim this relief on their SDLT return to benefit from this exception.


Transfer of Lease After Relief Claimed

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ When Beta Ltd transferred its lease to Gamma Ltd, group relief was clawed back, and Gamma Ltd paid £1,000 in SDLT on the premium, with further reassessment required after future rent reviews.


On 1 April 2015, Alpha Corp granted a 30-year lease over commercial property to its subsidiary Beta Ltd at an annual rent of £120,000, with five-yearly upwards-only rent reviews. Group relief was claimed at the time of the lease grant.

Rent Review and Increase

  • Date: 1 April 2020
  • New Rent: £130,000 per annum The scheduled rent review leads to an increase in the rent to £130,000.

Lease Transfer

  • Date: 1 August 2022
  • Transferor: Beta Ltd
  • Transferee: Gamma Ltd (an unrelated company)
  • Transfer Payment: £200,000

Transfer Details

Gamma Ltd pays Beta Ltd £200,000 for the lease transfer and assumes all existing terms and conditions of the lease. Since Gamma Ltd is not entitled to any group relief, the transfer is treated as the grant of a new lease for the remaining 22 years and 8 months of the term, with an initial yearly rent of £130,000.

Tax Implications

  • Clawback of Relief: The transfer results in the clawback of part of the relief claimed by Beta Ltd when the lease was initially granted.
  • Higher Rent Consideration: The calculation takes into account the new, higher rent of £130,000.

SDLT Charges

  • Premium Consideration: The £200,000 paid by Gamma Ltd to Beta Ltd is treated as a premium subject to SDLT.
  • SDLT Calculation:
    • £150,000 at 0%: £0
    • £50,000 at 2%: £1,000
    • Total SDLT on Premium: £1,000

Further Rent Review and SDLT Reassessment

A further rent review is due within five years of Gamma Ltd taking on the lease. Consequently, the acquisition is treated as a grant of a lease for uncertain or variable rent. Gamma Ltd will need to reassess the SDLT position when the rent review occurs, submit an additional SDLT return, and pay any further SDLT due.

Key Points

  • Initial lease granted by Alpha Corp to Beta Ltd with group relief.
  • Rent increased from £120,000 to £130,000 during the first rent review.
  • Lease transferred to Gamma Ltd for £200,000, treated as a new lease for SDLT purposes.
  • SDLT on the premium is £1,000.
  • Future rent review requires reassessment of SDLT.

This example illustrates the complexities involved in lease transfers and the importance of understanding SDLT implications, especially when reliefs and rent reviews are involved.

Shared Ownership Leases and Stamp Duty Liability

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ Shared ownership leases reduce SDLT by allowing buyers to pay based on the share they purchase, with options to reassess as they acquire more shares, and to elect for market value payment upfront.

Overview of Shared Ownership Leases

In affordable or social housing, shared ownership schemes allow individuals to purchase a portion of a dwelling while occupying the entire property. The remaining share is typically owned by a housing association or similar entity. The purchaser pays rent on the share they do not own.

SDLT (Stamp Duty Land Tax) Provisions

The Finance Act 2003, Schedule 9, includes specific provisions designed to minimise SDLT charges for these shared ownership arrangements. These provisions recognize the unique nature of shared ownership and provide relief to make these schemes more affordable for homebuyers.

Key Points of SDLT Relief for Shared Ownership Leases

Initial Purchase:

  • When an individual buys an initial share of the property, SDLT is calculated based on the purchase price of that share.
  • For example, if a buyer purchases a 50% share of a property valued at £200,000, SDLT is calculated on £100,000 (the value of the purchased share).


  • Staircasing refers to the process where the buyer purchases additional shares in the property over time.
  • SDLT is payable on each additional share purchased. However, there are specific reliefs to ensure SDLT is only applied to the value of the additional share, not the cumulative value of all shares owned.

Market Value Election:

  • Buyers can choose to pay SDLT based on the market value of the entire property at the time of the initial purchase, even if they are only buying a part-share.
  • This option might be beneficial in certain cases, such as avoiding multiple SDLT calculations with each staircasing transaction.

Thresholds and Reliefs:

  • There are specific thresholds and reliefs applicable to shared ownership properties to ensure SDLT is not excessively burdensome.
  • Details of these thresholds and the exact reliefs available can be found in section 5.42 of the Finance Act 2003.


Initial Purchase Example:

  • A buyer purchases a 25% share of a property worth £240,000.
  • SDLT is calculated on the 25% share (£60,000).
  • If the SDLT threshold is above £60,000, no SDLT is payable. If it is below, SDLT is payable on the amount above the threshold.

Staircasing Example:

  • The buyer later decides to purchase an additional 25% share.
  • SDLT is calculated on the value of the additional share at the current market value.
  • If the market value has increased, SDLT is calculated on the increased value of the additional share.

Market Value Election Example:

  • Alternatively, the buyer may elect to pay SDLT on the full market value of the property (£240,000) at the time of the initial purchase.
  • This election may simplify SDLT calculations for future staircasing transactions.


Examples of Variations in Lease Agreements

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ Rent increases within five years of starting a lease may trigger additional SDLT reporting, with further complexities if the lease terms are varied or if new leases are deemed to have been granted.

Increase in Rent Within First Five Years

An increase in rent according to the lease terms (e.g., through a rent review) does not constitute a variation. However, if rent can change within the first five years, it is considered uncertain at the lease’s inception, resulting in specific SDLT (Stamp Duty Land Tax) reporting obligations.

  • Rent Increase Not in Line with Original Terms:
    • If a lease is varied to increase rent, not in line with the original terms, and this occurs within five years of the lease’s start, a new notional lease is deemed to be granted. This new lease, equal to the rent increase, is subject to SDLT (Finance Act 2003, Schedule 17A, paragraph 13).
    • These rules do not apply to variations arising from certain agricultural tenancy provisions.

Example: Rent Increase in First Five Years

On March 1, 2019, John entered into a ten-year lease for an office building at an annual rent of £30,000, with a market rent review on March 1, 2024. An SDLT return was submitted. The lease restricted activities to office use and administrative tasks. John intended to convert part of the office into a small retail area and mentioned this to the landlord. 

The landlord agreed to vary the lease to allow retail activities, increasing the rent to £35,000 from September 1, 2021. A new notional lease is deemed to exist from this date for the remaining 7.5 years at £5,000 yearly rent. John must determine if SDLT arises on this deemed lease and submit a further SDLT return if so. Since the variation was anticipated, the original and deemed leases are likely linked, incurring additional SDLT.

Increase in Rent After First Five Years

For leases granted before December 1, 2003, or benefiting from transitional provisions, a variation to increase rent after five years is not subject to SDLT if it is a mere variation and not a new lease grant.


Transitional Provisions:

  • These provisions apply to leases that were in place before the introduction of SDLT or those benefiting from specific legislative provisions that mitigate SDLT liability under certain conditions.

Mere Variation vs. New Lease Grant:

  • A mere variation that adjusts rent according to the original lease terms or common market practices, without creating a new lease, does not attract additional SDLT.
  • Conversely, changes that effectively create a new lease (e.g., significant rent increase not envisioned in the original lease) are subject to SDLT.

Practical Steps for Lessees:

  1. Review Lease Terms: Understand the specific rent review clauses and how variations are handled within the first five years.
  2. Consult Legal and Tax Advisors: Before agreeing to any variations, consult with advisors to understand the SDLT implications.
  3. Submit SDLT Returns: Ensure timely submission of any required SDLT returns if a variation triggers additional SDLT liability.
  4. Monitor Legislative Changes: Stay updated on any legislative changes that might affect SDLT obligations for lease variations.

By understanding these key points, tenants can manage their SDLT obligations effectively when variations to their lease agreements occur.


Decrease in Lease Term and SDLT Implications

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ If a lease term is reduced, the landlord may face SDLT obligations for any payment made to the tenant, but payments from the tenant to the landlord are not subject to SDLT.

When a lease term is decreased, it is treated as the acquisition of a chargeable interest by the landlord. This scenario has specific implications for SDLT (Stamp Duty Land Tax) under the Finance Act 2003, Schedule 17A, paragraph 15A(2). 

Concept of Decreasing a Lease Term

  • Definition: Decreasing a lease term involves shortening the duration of an existing lease. This can occur through a mutual agreement between the tenant and the landlord.
  • Common Reasons: This adjustment might be made for various reasons, such as the tenant needing to vacate the premises earlier than planned or the landlord wanting to regain possession of the property sooner.

SDLT Treatment

Acquisition by Landlord:

  • Chargeable Interest: When the lease term is decreased, the landlord is considered to have acquired a chargeable interest in the property.
  • Implication: This acquisition can trigger SDLT liability for the landlord if there is consideration given for the reduction in the lease term.

Consideration Given by Landlord:

  • Within SDLT Charge: Any consideration (e.g., payment) given by the landlord to the tenant for agreeing to reduce the lease term is subject to SDLT.
  • Example: If the landlord pays the tenant £10,000 to reduce a ten-year lease to five years, this amount is considered a chargeable consideration for SDLT purposes.

Consideration Given by Tenant:

  • Not Subject to SDLT: If the tenant provides consideration to the landlord for reducing the lease term, such as paying a fee to exit an onerous lease early, this payment is not subject to SDLT.
  • Example: If a tenant pays the landlord £5,000 to shorten a lease from ten years to five years, this payment does not incur SDLT.

Practical Examples:

Landlord Pays Tenant to Reduce Lease Term:

  • Scenario: On January 1, 2020, David, a landlord, and Lisa, a tenant, agree to reduce a 15-year lease to 10 years. David pays Lisa £20,000 for this reduction.
  • SDLT Implication: The £20,000 payment is considered chargeable consideration, and David must pay SDLT on this amount.
  • Filing Requirement: David needs to submit an SDLT return and pay the SDLT due on the £20,000 consideration.

Tenant Pays Landlord to Reduce Lease Term:

  • Scenario: On January 1, 2020, Sarah, a tenant, wants to reduce her 10-year lease to 5 years. She agrees to pay her landlord, John, £10,000 for this reduction.
  • SDLT Implication: The £10,000 payment by Sarah is not subject to SDLT.
  • Filing Requirement: No SDLT return is required for the £10,000 paid by Sarah, as it does not attract SDLT.

Considerations for Both Parties:

  • Legal and Tax Advice: Both the tenant and landlord should seek legal and tax advice to understand the full implications of decreasing the lease term.
  • Agreement Documentation: Clearly document the agreement to decrease the lease term, specifying any payments made and the reasons for the adjustment.
  • SDLT Compliance: Ensure that any SDLT obligations are met, including filing the necessary returns and paying the tax due if applicable.


Decreasing a lease term can have SDLT implications, primarily affecting the landlord who acquires a chargeable interest in the property. Payments made by the landlord to the tenant for reducing the lease term are subject to SDLT, whereas payments made by the tenant to the landlord are not.

Surrender and SDLT Implications

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ When a lease is surrendered, the landlord may need to pay SDLT if they give the tenant any consideration, and the tenant is liable for SDLT on any new lease created as part of a surrender and re-grant.

Surrender of a Lease

The surrender of a lease is treated as the acquisition of a chargeable interest by the landlord according to the Finance Act 2003, section 43(3)(b). If the landlord provides chargeable consideration for the surrender, it falls under SDLT (Stamp Duty Land Tax) regulations.

Surrender and Re-grant

Determining whether a lease variation constitutes a surrender and re-grant is a legal matter. Legal advice should be sought in doubtful cases. Generally, a variation does not amount to a surrender and re-grant unless it changes the term of the lease or the premises involved.

Key Points:

  • New Lease’s Rent: SDLT is chargeable on the rent of the new lease.
  • Tenant’s Responsibility: Notification and payment of SDLT are the tenant’s responsibilities.
  • No Credit for Stamp Duty: If the original lease was under the stamp duty regime, no credit is given for previously paid stamp duty.
  • Credit for SDLT Regime: Credit may be available for overlap periods if the original lease was under the SDLT regime.

When the rent under the new lease is variable or uncertain, overlap relief is ignored in calculating the highest 12-month rent in the first five years. The surrender of the old lease is not chargeable consideration for the grant of the new lease and vice versa (Finance Act 2003, Schedule 17A, paragraph 16). Any chargeable consideration given by the landlord for the surrender must be notified and may incur SDLT.

Example Scenarios

Superseding Lease with No Credit for Stamp Duty

On February 1, 2021, Emma agrees to surrender her existing lease in exchange for a longer lease, with the landlord providing funding for refurbishments. The original lease is surrendered, and a new 15-year lease at market rent with five-yearly rent reviews is granted. SDLT is payable on the new lease. Since the original lease was under the stamp duty regime, no credit is given for previously paid stamp duty. The SDLT liability could have been lower if the old lease had been amended, and a reversionary lease entered for the period after its expiry.

Superseding Lease with Credit for SDLT

On June 1, 2023, Michael’s lease is amended to include additional land and extend the term by five years. This amendment is considered a surrender and re-grant, with SDLT payable on the new lease. Credit is given for the rent under the old lease. The deemed rent for SDLT purposes is calculated as follows:

  • First 5 Years: £10,000 per annum after credit.
  • Following 4 Years: £40,000 per annum.
  • Final Period to May 31, 2033: £30,000 for 9 months.

The highest deemed rent for SDLT purposes in the first five years is £40,000, ignoring the overlap relief.


Reversionary Leases

(SDLT and Leases>SDLT Obligations And Liabilities)

➤ Extending a lease term legally counts as a surrender and new lease grant, triggering SDLT based on the new lease’s effective date, not the rent start date.

Definition and Legal Implications

Reversionary leases involve varying an existing lease to extend its term, which legally constitutes a surrender and re-grant of the lease. This process is subject to Stamp Duty Land Tax (SDLT).

Key Points

  • Surrender and Re-grant: Extending the lease term amounts to surrendering the existing lease and granting a new one.
  • SDLT Implications: This action triggers SDLT, as highlighted by relevant legal precedents.
  • Alternative Approach: Instead of varying the lease, parties may opt to enter a new lease covering the desired extended period.

Effective Date and SDLT

  • Effective Date: For SDLT purposes, the effective date is the grant date of the new lease, not the commencement date.
  • Rent Calculation: The commencement date is used to calculate the Net Present Value (NPV) of the rents, which means there is no advantage gained from the rent’s future start date.
  • Linked Leases: The original and reversionary leases might be considered linked if the reversionary lease was planned when the original lease was signed. This is determined on a factual basis and not assumed.

Example Scenario: Reversionary Lease


  • Lessee: Clara occupies an office space under a ten-year lease set to expire on 31 August 2023.
  • New Agreement: On 15 January 2023, Clara executes a reversionary lease for an additional ten years starting from 1 September 2023, with an annual rent of £25,000.

SDLT Submission

  • SDLT Return Deadline: Clara must submit an SDLT return by 30 January 2023.
  • SDLT Payment: Any SDLT due must be paid by the same date.
  • NPV Calculation: The NPV of the rents, using 1 September 2023 as the start date, is £208,160.
  • SDLT Calculation: Since the lease is not linked with the previous lease, the SDLT payable is 1% of £(208,160 – 150,000), which is £581.60.

Practical Considerations

  • Timeliness: Ensure SDLT returns and payments are submitted promptly to avoid penalties.
  • Planning: Consider the implications of lease extensions early to allow for proper SDLT planning.

This expanded explanation provides a clearer understanding of reversionary leases, their legal implications, and practical considerations for SDLT submissions.

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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.