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Do You Pay Stamp Duty on a Commercial Lease?

SDLT on commercial leases can be very complex. Many tenants are unaware that Stamp Duty Land tax is payable on commercial leases – and may be hit with a penalty, as well as the full amount owed with interest if they fail to pay the tax on time.

Due to the complexity of the application of SDLT on commercial leases, there are also many circumstances where tenants mistakenly overpay the tax. If this is the case, it is possible to reclaim overpaid SDLT from HMRC, although this process can also be complicated.

If you are negotiating a commercial lease, seeking legitimate savings on SDLT or are attempting to reclaim overpaid tax, using an experienced Stamp Duty Land Tax barrister is highly recommended.

Patrick Cannon has over 35 years of experience working as an SDLT lawyer – first as a solicitor and latterly as a barrister. His in-depth knowledge of the intricacies of this field of tax law makes him the ideal choice to manage, advise and represent private and corporate clients in all aspects of SDLT on commercial leases. For more information, contact Patrick Cannon here .

Do I have to pay stamp duty on a commercial lease?

If you are a tenant of a commercial property, it is your responsibility to calculate and pay SDLT on the lease on time. Landlords bear no responsibility for SDLT on the lease.

For commercial tenants, SDLT may be payable on any of the following elements of your commercial lease: • Grant • Assignment • Variation • Surrender

SDLT is not payable on all commercial leases, however – and for this reason, it is highly recommended that you instruct a specialist tax lawyer or accountant to review your liability for the tax.

How to calculate stamp duty on a commercial lease?

As mentioned, calculating Stamp Duty on a commercial lease is complex, and while it is possible to use an online calculator, the calculators do not allow for all the complexities that may arise and so it is advisable to consult a tax lawyer or accountant who is well versed in handling commercial SDLT.

The SDLT rate is based on any lease premium paid by the tenant and on the rent due under the terms of the lease (including VAT if applicable).

The amount of ‘rent due’ is based on the first 5 years of rent payments. If the lease is longer than 5 years, the ‘rent due’ is based on the highest amount paid over a 12-month period during the first 5 years.

Once the length of the lease is factored in, the Net Present Value (NPV) of the lease can be calculated, and the amount of SDLT owed is based on this figure.

SDLT can also be applied to certain other payments made under the terms of a lease, and also to ‘chargeable considerations’, such as a commercial tenant’s obligations to carry out work or services on a rented property.

When Does Stamp Duty Land Tax Need To Be Paid?

SDLT needs to be paid within 14 days of the ‘effective date’ of the transaction. This could be the date of completion of the transaction, the moving-in date, or when the main part (‘substantial performance’) of the transaction has taken place.

Frequently Asked Questions

Do you have to pay stamp duty on a commercial lease extension.

Lease extensions may give rise to additional SDLT, however, neither the surrender of the old lease nor the grant of the new lease are regarded as ‘chargeable consideration’. It is always worth confirming your liability with a tax barrister or solicitor before you commit to a lease extension and to ensure that you are not missing the deadline for SDLT payment.

Is Stamp Duty the Same for leases on Residential, Mixed and Commercial Properties?

No – SDLT rates for residential vs Commercial property leases are different and the rates for residential leases can be found here.

SDLT rates for non-residential leases are as follows:

Are There Exemptions on Paying SDLT for a Commercial Lease?

Yes – you are exempt from paying SDLT if you are granted a commercial property lease of more than seven years, while the premium is under £40,000 with the annual rent of less than £1,000. There are other exemptions for SDLT on commercial leases, including leasebacks and extensions.

How Patrick Cannon Can Help?

Patrick Cannon is a highly experienced tax barrister and leading expert on SDLT . With his in-depth knowledge of the nuances of this complex area of tax law, Patrick is able to advise on all aspects of commercial lease SDLT, as well as manage all correspondence with HMRC, including claiming refunds for overpaid SDLT and defending clients in HMRC investigations and litigation.

For more information or to instruct Patrick Cannon directly, contact him here .

Last Updated: 18th January 2023

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SDLT: leases | Practical Law

SDLT: leases

Practical law uk practice note 8-107-4821  (approx. 40 pages).

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Stamp Duty Land Tax (SDLT) and Lease Extensions

Linz Darlington | January 2024

When you purchase a property you often have to pay Stamp Duty Land Tax, also known as SDLT.

However, the good news is that most people don’t need to pay stamp duty (SDLT) on their lease extension premium. Even if you do have to pay Stamp Duty on your lease extension premium, this would not be paid on the professional fees related to the transaction.

This article explains this in more detail - but please note it is just a summary of Government guidance. It should not be taken as tax advice.

Do you only own one residential property?

If you’re extending the lease on the only property you own (in the world) then you would only need to pay Stamp Duty (SDLT) if the premium is over £250,000. If you are either married to someone who owns more than one property, or a co-owner of your flat does, please read the next section.

The £250,001 threshold is set because a lease extension is considered the same as purchasing a property and Stamp Duty Land Tax is only payable on purchases over £250,000.

In this case you will only pay Stamp Duty on the bit above £250,000.

So, if the lease extension premium is £300,000, you’ll pay Stamp Duty on £50,000. You can get an idea of the rate you would pay here .

As a result, unless you have very high value flat (in somewhere like Belgravia) or you have a very, very short lease then you are unlikely to have to pay SDLT on your lease extension.

Do you own more than one residential property (or are married to or own the property with you does)?

However, the story is little different if you own multiple properties. Even if you only own one property, if you are married to someone or own the flat with a friend who owns more than one property this rule also applies. In this case, you’re likely to have to pay the Stamp Duty if the cost of the lease extension is more than £40,000.

Unless your lease is below 80 years (or you have a very high ground rent) then you're still unlikely to pay SDLT.

The £40,000 threshold is due to the Higher Rate of Stamp Duty , which kicks in at £40,000.

Confusingly, the way this works is that if your lease extension premium is £40,000 or above you will pay Stamp Duty on the whole amount. This means if your lease extension premium is £50,000, you’ll pay Stamp Duty on £50,000 – not £10,000.

Equally, it is worth noting that this payment would apply if you own more than one property, even if the flat you are extending the lease on is your main residence.

Are you looking for help with a lease extension?

Start your lease extension today.

Linz is the CEO and co-founder of Homehold. He’s always looking at how we can improve our service and better support you through the lease extension process. If you have any questions about your lease he’d be delighted to help.

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Stamp Duty on a Commercial Lease (A Guide!)

• 18 March 2024

IN THIS ARTICLE

Stamp Duty Land Tax (SDLT) must be paid on land transactions in England, including commercial leases over a certain threshold. SDLT may be payable on the grant, assignment, variation or surrender of a commercial lease.

The rules surrounding SDLT are complex and it is the tenant’s responsibility to calculate and pay any stamp duty on a commercial lease that is due to HMRC.

For commercial leases, SDLT can be charged on the premium (initial payment for the lease) and the rent, with different rules applying to each.

Understanding SDLT is crucial for businesses and landlords engaging in commercial property transactions because it affects the total cost of acquiring, leasing, or transferring property. The amount of SDLT payable depends on several factors, including the purchase price, property type, leasehold terms, and whether any SDLT reliefs or exemptions apply.

Several considerations can impact SDLT liability, including lease premiums, rent NPV, and specific lease terms like rent reviews.

Various SDLT reliefs could apply to reduce liability, such as for certain types of leases or transactions involving charities.

Properly managing SDLT obligations can prevent unexpected costs and penalties, making it a critical consideration for businesses and landlords in the UK commercial property market .

It’s essential to consult with professionals when negotiating lease terms and managing SDLT obligations to ensure compliance and minimise tax liability.

Section A: The Evolution of Stamp Duty

Stamp Duty in the UK has a long and varied history. It was initially introduced in 1694 as a temporary measure to fund war efforts against France.

It originally applied to vellum, parchment, and paper for legal documents or ‘instruments,’ with a physical stamp or seal signifying payment.

The success of the Stamp Acts in raising revenue led to their adoption in other European countries and attempts to introduce them in the American colonies, significantly contributing to the tensions leading to the American War of Independence.

Over the years, the scope of Stamp Duty expanded beyond legal documents to include newspapers, pamphlets, lottery tickets, playing cards, and various goods like hats, gloves, and perfumes. Initially charged as a fixed amount, Stamp Duty became an ad valorem tax (based on the value of the transaction) in 1808 for conveyances of sale, including land and shares.

The administration of stamp taxes has evolved. After several mergers of tax bodies, the Inland Revenue managed them, leading to the current oversight by HM Revenue & Customs (HMRC).

Significant changes in recent history include the replacement of Stamp Duty with Stamp Duty Land Tax (SDLT) for property transfers in 2003, which aimed to modernise the tax to apply to land transactions on a sliding scale.

SDLT requires a tax return to HMRC for all land transfers, with penalties for non-compliance, and is charged on leasehold transactions and freehold purchases. The tax structure and rates have seen adjustments over the years to reflect economic conditions and housing market changes, including various threshold adjustments and the introduction of relief measures for first-time buyers and certain disadvantaged areas.

Despite calls for its abolition and promises of reform, Stamp Duty continues to be a significant source of revenue for the UK government, reflecting the tax’s enduring role in the UK’s fiscal landscape.

Section B: How Stamp Duty is Calculated for Commercial Leases

Stamp Duty Land Tax calculation for commercial leases in the UK involves multiple components and depends on both the lease premium and the net present value (NPV) of the rent payable over the lease term. The process and applicable rates can vary depending on whether the property is considered residential or non-residential.

For new commercial leases, the SDLT calculation considers the premium and the rent’s net present value (NPV), which considers expected rental payments over the lease term at present-day prices. SDLT is not payable on premiums under £150,000 for annual rents less than £1,000, but once thresholds are exceeded, SDLT rates apply on a sliding scale based on the value of the transaction.

Additionally, the lease’s duration significantly impacts SDLT liability because the total rent payable over the life of the lease is considered, potentially attracting SDLT even for long leases with modest rent.

1. Calculation Components

a. Premium: SDLT on the lease premium is calculated similarly to that on the sale of a property. The rates may vary based on the total premium amount.

b. Rent: SDLT on rent is calculated based on the NPV of the rent over the lease term. The NPV is the current worth of all lease payments over the term, discounted back to present value.

2. For Non-Residential Leases

The SDLT on the premium follows a tiered structure. For example, you won’t have to pay SDLT on the premium for annual rents of £1,000 or more if the premium is under the £150,000 threshold.

SDLT on the rent portion is charged if the NPV exceeds certain thresholds. For instance, no SDLT is due on the NPV portion up to £150,000. Beyond this, SDLT rates apply on a sliding scale.

3. SDLT Calculator

For precise calculation, it’s recommended to use the SDLT lease transactions calculator provided by HMRC, as it accommodates various thresholds and rates for different portions of the consideration.

Section C: Current Stamp Duty Rates for Commercial Leases

For commercial leases in the UK, calculating Stamp Duty Land Tax (SDLT) involves considering both the premium paid for the lease and the net present value (NPV) of the rent over the lease term.

SDLT Rates for Non-Residential Leases are as follows:

Premium ◦ No SDLT is due on the premium if the annual rent is less than £1,000 and the premium is under the £150,000 threshold. ◦ The SDLT is calculated based on a percentage of the premium amount for premiums over these thresholds.

Rent (NPV) ◦ For the NPV of rent, no SDLT is payable if the NPV is less than £150,000. ◦ For NPVs between £150,001 and £5,000,000, the rate is 1%. ◦ If the rate is above £5,000,000, it increases to 2%.

SDLT Rates for Freehold Sales and Transfers • For transactions up to £150,000, no SDLT is payable. • For the portion from £150,001 to £250,000, a 2% rate applies. • For amounts above £250,000, a 5% rate is applicable.

An example provided for a freehold commercial property purchase priced at £275,000 shows a tiered calculation resulting in a total SDLT of £3,250, demonstrating how the tax applies progressively based on the transaction value.

It’s important to note that for new non-residential or mixed leasehold transactions, SDLT is calculated separately on the purchase price of the lease (lease premium) and the value of the annual rent (NPV). These amounts are then added together to determine the total SDLT due.

Section D: Stamp Duty Exemptions and Reliefs

Exemptions from Stamp Duty Land Tax (SDLT) on commercial leases include transfers with no payment exchange, properties inherited in wills, transfers due to divorce or dissolution of a civil partnership, freehold properties purchased for less than £40,000, and leases over seven years with premiums under £40,000 and annual rent less than £1,000. Reliefs may apply to first-time buyers, multiple dwellings, and properties bought for charitable purposes.

Always file an SDLT return to claim relief, even if no tax is due .

Section E: Submission and Deadlines

1. how to file & pay stamp duty.

To file and pay Stamp Duty Land Tax (SDLT) for a commercial lease in the UK, you typically need to use the HMRC’s online SDLT return system.

Gather the necessary documents, including transaction details, lease agreement, and proof of payment for the lease premium and rent.

Ensure accuracy in your submission to avoid penalties.

2. Filing & Payment Deadline

SDLT returns must be submitted to HMRC within 14 days of the effective transaction date, which could be the completion date, the date of the first rent payment, or when substantial performance of the transaction occurs. Late submission can result in penalties and interest charges .

For detailed and updated information on calculating SDLT for commercial leases, including any recent changes, visit the official GOV—UK pages on Stamp Duty Land Tax on Leasehold sales and the overview of SDLT .

3. Does Stamp Duty Land Tax only need to be paid at the start of the lease?

You may need to make further SDLT payments during the term of your lease.

Rent review

When the initial SDLT is calculated it is based on the first five years’ rent. If your lease includes a rent review within the first five years and a new rent is agreed you will need to file an additional SDLT payment to cover the revised rent. In some circumstances rent reviews that occur after the first five years may also incur SDLT if it has been deemed an abnormal increase. This situation can occur when rent has been kept artificially low for the initial period in an attempt to reduce SDLT.

Holding over

If a lease expires but the tenant remains in occupation of the premises this is known as ‘holding over’. Any lease that continues after its expiry is treated as if the original lease has extended for a year. If SDLT was paid at the commencement of the lease, or if the lease has been taken over the SDLT threshold with this additional year an SDLT Return and additional payment must be made to HMRC.

Lease renewals

Renewal leases are subject to the same SDLT rules as normal leases.

Breaking a lease

Tenants who are considering breaking their lease should be aware they will not be entitled to receive a SDLT refund from HMRC for the remainder of their lease term.

Section F: Common Mistakes to Avoid

Common mistakes businesses make with Stamp Duty on commercial leases include:

• Miscalculating the net present value (NPV) of the rent. • Not claiming eligible reliefs. • Missing deadlines for filing and payment can lead to penalties.

To avoid these errors, always use the HMRC’s SDLT calculator for accurate calculations, thoroughly review eligibility for reliefs or exemptions, and ensure that all SDLT returns are submitted and payments are made within 14 days of the transaction’s completion.

Stamp Duty on Commercial Leases FAQs

What are the Stamp Duty rates for commercial leases? 

Rates vary based on the lease’s premium and the rent’s net present value (NPV). Use the HMRC’s SDLT calculator for specifics.

What are the deadlines?

SDLT returns and payments must be submitted within 14 days of transaction completion.

How do I file? 

Filing is done through HMRC’s online portal. Have lease details and payment information ready.

Are there exemptions?

Certain transactions, like transfers with no payment, inheritances, and leases under specific thresholds, may be exempt.

Gill Laing is a qualified Legal Researcher & Analyst with niche specialisms in Law , Tax , Human Resources , Immigration & Employment Law .

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How is SDLT calculated on the assignment of a lease?

The assignment of a lease is generally treated in the same way as the transfer of a freehold interest and any payment or premium on the assignment (other than a reverse premium) will be subject to stamp duty land tax (SDLT) at the

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Stamp Duty Land Tax (SDLT) is sometimes payable by tenants on leases. The SDLT payable is determined by the value of the lease, which is calculated based on any premium paid, the rent payable and the length of the lease. SDLT is more likely to be payable with medium to longer term leases or when the rents are higher. 

The SDLT becomes payable on the ‘effective date’ of the lease. This is usually the date of completion of the lease, though this date can sometimes vary if there has been ‘substantial performance’ before completion. The current filing deadline is 14 days from the effective date of the transaction. If SDLT is payable then an SDLT form will need to be lodged with HMRC within the relevant time frames along with any payment due.

Please note that whether or not SDLT is payable on your lease transaction, an SDLT form will still need to be filed with HMRC if the lease is for a term of seven years or longer.

Should you have any concerns regarding SDLT issues please do not hesitate to contact our commercial property solicitors on  01616 966 229 or complete our online enquiry form and we will contact you directly.

There are a number of circumstances during the term of your lease when SDLT may again become payable. It is imperative that you are aware of these circumstances as HMRC are becoming more and more aggressive in their pursuit of individuals and companies who have avoided, forgotten or simply not been aware that an SDLT payment has become due. You could be liable to fines and interest payments if you fail to correctly pay SDLT when due. The Inland Revenue have the ability to query for many years after they were due, and this gives them a large amount of leeway to chase missed SDLT payments. 

Below are a number of circumstances which may arise during, or at the end of your current lease, and which may give rise to an SDLT liability. Should you require any advice in respect of the same either now, or at any stage in the future, please do not hesitate to contact us closer for further advice. Please note that the responsibility for SDLT payments is your own and not knowing the rules will not be a valid excuse for HMRC.

Common SDLT requirements under leases

Rent review.

The SDLT payable on a lease is calculated by reference to the first five years’ rent. Therefore, if you have a rent review within the first five years and the new rent amount was not known at the outset (for example where rents are to be reviewed in line with market rents or business results as at a future date, or index-linked) then an additional return may need to be filed once the revised rent is determined. A further payment of SDLT may also be due at that stage.

Accordingly it is advisable to seek advice prior to or on the determination of any rent review, to ascertain the likely SDLT implications and whether any payments are required.

Lease expiry and holding over

If your original lease term expires, but you continue in occupation of the premises, then you are deemed to be ‘holding over’ your lease. Once your lease continues after its contractual expiry date then it is treated as if the original term of your Lease has been extended by one year. i.e. a five year lease will be treated as a six year lease. If SDLT was paid at the start of your lease (or if the extra year takes the lease over the SDLT threshold), then at this stage a further SDLT payment will be required and will need to be filed with HMRC. For each subsequent year that the lease is ‘held over’ another SDLT form needs to be filed. This is known as the growing lease regime. Failure to file further returns within the relevant short timescales could could result in fines.

Lease renewals

Unless your lease is expressly excluded from the Landlord and Tenant Act 1954, then as a commercial tenant, you are entitled to a new lease (on substantially the same terms) at the expiry of your current lease. Such renewal leases could have SDLT implications. 

You should always seek legal advice when taking a renewal lease as you have numerous rights to which you will be entitled. SDLT issues will also apply in this scenario.

Lease extension

If you agree to extend the term or the extent of the land included in your lease, then the extension is treated as a surrender and re-grant, and SDLT may be payable on the value of the re-granted lease. 

Breaking a lease

Please note that if you decide to break your lease early, you are not entitled to get any money back from HMRC, despite having paid SDLT for the full lease term. 

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What are the SDLT issues where there is an assignment of a lease between group companies?

Practical law resource id a-127-8551  (approx. 3 pages).

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LBTT6050 - Transitional provisions

This guidance covers the transitional rules that specifically relate to pre-implementation.

Introduction

Overlapping leases, assignation of a lease treated as the grant of a lease, variation or extension of a lease.

• NPV Calculation

Three-year lease reviews

• Stamp duty leases

Land and Buildings Transaction Tax (“LBTT”) replaced Stamp Duty Land Tax (“SDLT”) in Scotland from 1 April 2015 (the commencement date). Special transitional rules are set out in The Land and Buildings Transaction Tax (Transitional Provisions) (Scotland) Order 2014 (2014/377) (the “TPO”). The purpose of the TPO (as set out in the Policy Note ) is to ensure that different types of land transactions or arrangements involving land transactions in Scotland are not taxed twice (by both SDLT and LBTT) but are subject to one tax or the other where appropriate, rather than no tax at all. As Scottish leases executed prior to 1 December 2003 (within the Stamp Duty (“SD”) regime) fall within the scope of leases subject to SDLT, they are covered by the TPO in certain circumstances, see below for further detail.

This guidance aims to provide additional detail on how Revenue Scotland interprets the legislation. This interpretation is consistent with the HMRC Transitional Guidance , the Revenue Scotland transitional examples and how Revenue Scotland have interpreted the rules since the introduction of LBTT.

The guidance covers the transitional rules that specifically relate to pre-implementation leases (leases granted prior to 1 April 2015). The following rules are contained within the TPO:

• Overlapping leases – Article 10 ensures that the discount in respect of overlapping leases under Paragraph 24, Schedule 19 of the Land and Buildings Transaction Tax (Scotland) Act (“LBTT(S)A”) can apply, even though the lease was entered into prior to the 1 April 2015.
• Assignation of exempt lease granted prior to 1 April 2015 – Article 11 applies where tax reliefs were previously claimed so that the lease was exempt from SDLT and the lease is then assigned to a different tenant after 1 April 2015. Where the new tenant is not entitled to any of those tax reliefs, Article 11 ensures that Paragraph 27, Schedule 19 LBTT(S)A applies so that an assignation of the lease is treated as a new lease for LBTT purposes.
• Variation of lease – Article 12 applies where the lease is varied after the commencement date to increase the amount of rent within the first five years of the grant of the original lease. The variation is treated as a grant of a new lease for LBTT purposes.
• Extension of lease – Article 13 applies where there is an extension of the term or premises of a lease. The variation is treated as a grant of a new lease for LBTT purposes.

Rules covering rent for an overlap period in the case of a grant of a further lease are found at LBTT(S)A 2013 Paragraph 24, Schedule 19 . 

Article 10 of the TPO applies where the old lease has been granted prior to 1 April 2015 (and the rent was taken into account for calculating SDLT), and one of the following has taken place :

• party A renounces an existing lease to party B (the old lease) and in consideration of that renunciation party B grants a lease to party A of the same or substantially the same premises (the new lease);
• on termination of a lease (the head lease) a sub-tenant is granted a lease (the new lease) of the same or substantially the same premises as the tenant’s old lease in pursuance of a contractual entitlement arising in the event of the head lease being terminated; or
• a person who has guaranteed the obligations of a tenant under a lease that has been terminated (the old lease) is granted a lease of the same or substantially the same premises (the new lease)  in pursuance of the guarantee.

The overlap period is the period between the date of the grant of the new lease and what would have been the end of the term of the old lease had it not been terminated.

The rent paid during an “overlap period” is treated as paid under the old lease and not the new lease. Under the transitional rules the rent that would have been payable under the old lease is the amount of rent taken into account in determining the tax chargeable under the SDLT rules in respect of the acquisition of the old lease.

The rent payable under the new lease is treated as reduced by the amount of rent that would have been payable during the overlap period under the old lease (but cannot be a negative amount). This is the actual rent during this period even where this is different from the rent which was payable when the old lease was granted.

In summary, where there is an assignment of a SDLT or SD lease which was previously exempt from charge (due to one of the reliefs listed below), the first assignation of the lease where none of the reliefs are available is treated as the grant of a new lease. The new lease will be for the remaining term of the lease and on the terms agreed to by the assignee.

Article 11 applies where the following conditions are met:

• the effective date of the grant of the lease is prior to 1 April 2015;
• Section 57A (sale and leaseback relief);
• Part 1 or 2 of Schedule 7 (group relief or reconstruction or acquisition relief);
• Part 1 or 2 of Schedule 7A (PAIF seeding relief and COACS seeding relief);
• Section 66 (transfers involving public bodies);
• Schedule 8 (charities relief);
• Paragraphs 6 and 8 of Part 3 of Schedule 61 to the Finance Act 2009 (alternative finance investment bond relief)
• any such regulations as are mentioned in Section 123(3) (regulations reproducing SDLT the effect of enactments providing for exemption under SD).
• this is the first assignation of the lease after 1 April 2015 that is not exempt from charge by virtue of any of the above reliefs occurring (and in relation to which the assignee does not acquire the lease as a bare trustee of the assignor).

This rule does not apply where group relief, reconstruction or acquisition relief, PAIF seeding relief, COACS seeding relief or charities relief applied and is withdrawn as a result of a “disqualifying event” occurring before the effective date of the assignation. A disqualifying event is defined in Paragraph 11(5), Schedule 17A FA 2003.

Further details of the SDLT rules related to Paragraph 11, Schedule 17A FA 2003 can be found in the HMRC SDLT manual at SDLTM17090 .

Where Article 11 applies:

• The grant of the lease referred to above shall be treated as the grant of the lease for the purposes of Paragraph 27(1) of Schedule 19 LBTT(S)A;
• the first assignation of a lease referred to above is treated as the first assignation of a lease for the purposes of Paragraph 27(2) of Schedule 19; and
• the provisions in Paragraph 11(3) and (5) of Schedule 17A FA 2003 shall be treated for the purposes of Paragraph 27 of Schedule 19 as if they were the corresponding provisions in Paragraph 27(3) and (5) of Schedule 19.

See LBTT(S)A 2013 Paragraph 27, Schedule 19 for the relevant legislation for cases where the assignation of lease is treated as the grant of a lease. LBTT6026 also provides guidance on the circumstances when the assignation of a lease is treated as the grant of a lease.

General principles

Articles 12 and 13 of the TPO provide that certain variations and extensions of leases that were granted prior to 1 April 2015 (“a pre-implementation lease”) are to be treated as the grant of a new lease for LBTT purposes.

The relevant variations or extensions are where, after the 1 April 2015:-

• the pre-implementation lease is varied to increase the amount of rent, within the first five years of the grant of the lease (Article 12); or
• there is an extension of the term or premises of a pre-implementation lease (Article 13)

Therefore, where Schedule 17A FA 2003 would have applied before 1 April 2015 to a relevant variation or extension of a pre-implementation lease (but can no longer apply due to Sections 29(5) of the Scotland Act 2012 disapplying SDLT after 1 April 2015), LBTT applies.   

The new lease is an acquisition of a new chargeable interest that is chargeable under Section 4 and Section 6(1)(a) LBTT(S)A. Therefore, all of the rules that follow from the creation of a new lease follow this (such as the availability of the nil rate band).

The subject matter of the lease: The relevant part of the varied lease contract that is treated as a new lease under the LBTT rules is the part related to the variation or extension. The part of the lease contract that was subject to SDLT (the “SDLT lease”) does not enter the LBTT regime.

The effective date : is the date of signature of the variation or, in the less common case, the date of conclusion of the missives which constitutes the variation i.e. where no formal minute of variation will be entered into. This is in accordance with Sections 63 and 64 of the LBTT(S)A.

The rent: As the original lease will already have been subject to SDLT, LBTT will only be liable on the additional rent which results from the variation or extension.

The term: The term of the new lease is the period in which possession of the property or rent in relation to the new terms can be linked. The start date of the new lease is the start date of the relevant term. There may be a number of changes to the lease when it enters this period. The tenant does not have possession under the new LBTT lease until possession is under those terms. The tenant may have possession of the premises during the period between the effective date and the start of the term of the new lease but this possession is linked to the SDLT lease.

The relevant date:  is usually the effective date as per  LBTT6002 - Effective date for lease transactions | Revenue Scotland

Article 12 - variation of a lease

The term of the deemed new lease is the term over which the rent has been increased.

It is important to note that the variation is treated as a new LBTT lease and it is not treated as a variation of an existing LBTT lease.

Note: If the lease is varied after the 1 April 2015 to increase the amount of rent after the first five years of the grant of the lease then the lease will not enter the LBTT regime (unless one of the other TPO provisions apply). Therefore, there should be no new deemed LBTT leases created by Article 12 from 31 March 2020.

Article 13 - extension of a lease

Where a lease is varied by an extension to its term, the “term” for the purposes of the new LBTT lease is the period by which the lease contract has been extended. The new lease starts when the original term ends.

If the new deemed LBTT lease is a result of an extension to the premises let, the tenant cannot substantially perform the contract before they are in possession of those premises. If there is a prior contract before the minute of variation, and the variation relates wholly or partly to an extension to the premises let, then if the tenant takes possession of the extended area, the effective date will occur as at that date and the term of the lease will start from that date.

Where the tenant does not take possession of the additional premises in advance of the minute of variation the effective date is the date the minute of variation is signed. The start of the new lease is start date agreed in the minute of variation and it runs until the end of the lease contract.

The additional rent is the full rent related to the extended period or the additional premises.

Where both Articles 12 and 13 apply

If the rent is varied within the first five years of the lease and a minute of variation also extends the lease this is likely to give rise to two deemed leases under the TPO.

The successive linked lease provisions in LBTT(S)A 2013 Paragraph 23, Schedule 19 apply to the two leases.

Therefore the two new leases are treated as the grant of a single lease, at the time of the grant of the first deemed lease, for a term equal to the aggregate of the terms of both of the leases and in consideration of the rent payable under both of the leases.

Net Present Value (NPV) calculation

NPV of the rent payable over the term of a lease is calculated by applying the following formula -

r is the rent payable in respect of year i ,

i is the first, second, third etc. year of the term of the lease,

n is the term of the lease, and

T is the temporal discount rate.

As set out above, the term where Articles 12 or 13 of the TPO apply is the duration of the new LBTT lease. The lease starts when there is possession under the new LBTT lease and so may be different from the effective date. As highlighted above, the tenant may have possession of the premises during the period between the effective date and the start of the term of the new lease but this possession is linked to the SDLT lease.

Rent will be rent under the new LBTT lease i.e. the additional rent payable over and above that due under the SDLT lease.

See the transitional lease examples below.

The three-year LBTT review returns will inform Revenue Scotland of any changes that have occurred since the effective date or last review date. These start from the effective date, which is usually the date of variation. This allows Revenue Scotland to review the amount of tax chargeable on the lease and take account of those changes.

This would only take account of changes to the LBTT lease and not those related to the “SDLT lease”. There may be one or more three-year lease review returns due before the extended lease period actually begins.

Reviews will be required until the termination of the lease contract.

Increases in rent

Where there is an increase in rent as a result of a periodic rent review or where the rent increase takes place after 5 years from the grant of the lease, LBTT is not chargeable on the SDLT lease.

If the rent increase applies to the extended period, the full rent in this period is taken into account for LBTT. Any increase in rent in relation to this period will be taken into account in the next 3 year review.

If the rent increase applies to an extension in the premises to which Article 13 of the TPO applied, then the rent increase must be apportioned as between the SDLT lease and the LBTT lease. This increase will be taken into account in the next 3 year review of the lease and this should be done on a just and reasonable basis under Paragraph 4, Schedule 2 LBTT(S)A. What is just and reasonable for any particular lease will be fact dependent.

Stamp Duty leases

The purpose of the TPO (as set out in the Policy Note ) is to ensure that different types of land transactions or arrangements involving land transactions in Scotland are not taxed more than once but are subject to one tax or the other where appropriate, rather than no tax at all. Therefore, the purpose of the Order is to ensure those transactions that would have been chargeable under SDLT are chargeable to LBTT after the 1 April 2015. It ensures that existing Scottish leases do not fall out of tax when they move between the different regimes.

The modern approach to statutory construction is to have regard to the purpose of a particular provision and interpret its language, so far as possible, in a way which best gives effect to that purpose. This approach applies as much to a taxing statute as any other. In seeking the purpose of a statutory provision, the interpreter is not confined to a literal interpretation of the words, but must have regard to the context and scheme of the relevant Act as a whole.

FA 2003 introduced SDLT where a land transaction has an effective date of 1 December 2003 or later (the implementation date). There are also special provisions for land transactions effected in pursuance of a contract entered into on or before the date of Royal Assent of the FA03 – 10 July 2003. Generally, Scottish leases granted prior to 1 December 2003 fell within the SD regime.

For SDLT purposes, the extension and/or variation of a Scottish lease granted prior to 1 December 2003 would have   been treated as the grant of a new lease (see the archived HMRC SDLT guidance for Scottish leases ) for the purposes of Schedule 17A FA03.

Applying a purposive interpretation to the wording at Articles 12 and 13 of the TPO that state that they apply to leases “ which the provisions of Schedule 17A to the 2003 Act apply ” would, in Revenue Scotland’s view, include leases granted prior to the introduction of SDLT.

Revenue Scotland’s LBTT Technical Bulletin 1 dated 16 October 2016 explained that the provisions of Schedule 17A FA 2003 can be considered to apply to Scottish leases varied after July 2003. Variations from April 2015 would have been subject to SDLT but for the introduction of LBTT (even if these were not previously varied by March 2015). Although Article 12 of the Transitional Provisions Order does not bring variations of rent alone in a Stamp Duty lease into charge for LBTT (because of the five year rule), variations within the scope of Article 13 are potentially chargeable, depending on the terms of the lease, to LBTT on the additional amount of rent.

The SDLT rules at Schedule 17A FA 2003 were generally accepted to apply to SD leases surrendered and re-granted; assigned where previously exempt; or varied to extend the premises or period prior to 1 April 2015. The guidance above in relation to those circumstances therefore applies to SD leases.

A 15 year lease with an annual rent of £50,000 was executed on 1 September 2014. An SDLT return was submitted and resultant tax paid.

On 1 September 2015, a minute of variation was executed to increase the rent from £50,000 to £75,000 per annum from the date of execution of the minute. The rent increase was not pursuant to a rent review clause in the original lease. Under the SDLT rules (Paragraph 13(1), Schedule 17A FA 2003), an increase in rent within the first five years of the grant of the lease would have been treated as a grant of a new lease. As this applies in this case, the increase in rent is treated as the grant of a new lease under Article 12 of TPO.

The effective date will be the date the minute of variation was executed, 1 September 2015. An LBTT return is required by the filing date of 1 October 2015.

The effective date is used to determine when the three yearly review return will be due. This will be based on the third anniversary of the effective date and every three years thereafter. The third anniversary of the effective date of the transaction is 1 September 2018. The three yearly review return must be made by the filing date of 1 October 2018.

The chargeable consideration will be all of the  additional  rent payable in the remaining years of the lease. If the rent had already been increased within the terms of the original lease, the additional rent is the difference between the rent established by the variation and the rent immediately before the variation is put into effect – sometimes called the “passing rent”.

The NPV is calculated using the additional £25,000 payable in each of the 14 remaining years. This results in a NPV of £273,013.01.

Using the rates and band for leases, the total tax chargeable would be:

(£150,000 x 0%)+(£123,013.01 x 1%) =  £1,230

Note: Where a lease granted prior to 1 April 2015 is only varied to increase rent later than 5 years from the grant of the lease this is not treated as creating a new lease under Article 12 of the of the TPO.

A ten year lease with an annual rent of £100,000 was executed on 1 August 2013. An SDLT return was submitted and resultant tax paid.

On 1 August 2015, a minute of variation was executed to extend the lease for a further 5 years. This is treated for LBTT purposes as the grant of a new lease under Article 13 of the TPO.

The effective date will be the date the minute of variation was executed, 1 August 2015. An LBTT return is required by the filing date of 31 August 2015. Although the effective date is 1 August 2015, the term of the lease will not start until the tenant takes possession of the premises under the new lease, which will be under the extended term starting on 1 August 2023.

The effective date is used to determine when the three yearly review return will be due. This will be based on the third anniversary of the effective date and every three years thereafter . The third anniversary of the effective date of the transaction is 1 August 2018. The three yearly review return must be made by the filing date of 31 August 2018. There will be further three yearly review returns due in August 2021, August 2024, August 2027 and then a termination return due when the lease expires on 31 July 2028. Under LBTT rules, no termination return will be required at the end of the original SDLT lease, but only on expiry of the LBTT lease.

The chargeable consideration will be all of the additional rent payable under the term of the lease. As stated above, the term of the new LBTT lease is the extended five year period (1 August 2023 – 31 July 2028).

You therefore need to input the term of the lease as 1 August 2023 – 31 July 2028 on the return and enter £100,000 each year for the 5-year lease. You do not put the start date of the lease as the effective date and enter 0’s into the return.

The NPV is calculated using the £100,000 payable in each of the five extended years. This results in a NPV of £451,505.24. The start date of the LBTT lease is 1 August 2023.

Using the rates and band for leases at the effective date, the total tax chargeable would be:

(£150,000 x 0%)+(£301,505.24 x 1%) = £3,015

The calculations will be as follows on the lease transactions calculator:

A ten year lease with an annual rent of £100,000 was executed on 1 May 2012. An SDLT return was submitted and resultant tax paid.

On 1 May 2015, a minute of variation was executed to extend the lease for a further 10 years and increase the annual rent from the effective date by £20,000. Each variation is treated as a grant of a new lease, for LBTT purposes, under Articles 12 and 13 of the TPO. The LBTT leases are part of a single arrangement, therefore they are successive linked leases. They would be treated as a single lease for LBTT purposes.

The effective date will be the date the minute of variation was executed, 1 May 2015. An LBTT return is required by the filing date of 31 May 2015.

The effective date is used to determine when the three yearly review return will be due. This will be based on the third anniversary of the effective date and every three years thereafter. The third anniversary of the effective date of the transaction is 1 May 2018. The three yearly review return must be made by the filing date of 31 May 2018.

The term of the new LBTT lease is 1 May 2015 – 30 April 2032.

The chargeable consideration will be the increased rent during the term of the LBTT lease. That is, £20,000 per annum from May 2015 to April 2022 and £120,000 from May 2022 to April 2032.

The NPV is calculated from 7 years’ annual rent of £20,000 and 10 years’ annual rent payable of £120,000. This results in a NPV of £906,704.

Using the rates and bands for leases, the total tax chargeable would be:

(£150,000 x 0%) + (£756704 x 1%) = £7567

Note: Where a lease granted prior to 1 April 2015 is varied to increase rent later than 5 years from the grant of the lease this variation is not treated as creating a new lease under Article 12 of the TPO.

A ten year lease with an annual rent of £100,000 was executed on 1 May 2009. An SDLT return was submitted and resultant tax paid.

On 1 May 2015, a minute of variation was executed to extend the lease for a further 10 years and increase the annual rent by £20,000 with immediate effect.

This is to be treated as the grant of a new lease under Article 13 of the TPO.

The effective date will be the date the minute of variation was executed, 1 May 2015. An LBTT return is required by the filing date of 31 May 2015. Although the effective date is 1 May 2015, the term of the lease will not start until the tenant takes possession of the premises under the new lease, which will be under the extended term starting on 1 May 2019.

The effective date is used to determine when the three yearly review return will be due. This will be based on the third anniversary of the effective date and every three years thereafter. The third anniversary of the effective date of the transaction is 1 May 2018. The three yearly review return must be made by the filing date of 31 May 2018. There will be further three yearly review returns due in May 2021, May 2024, May 2027 and then a termination return due when the lease expires on 30 April 2029. Under LBTT rules, no termination return will be required at the end of the original SDLT lease, but only on expiry of the LBTT lease.

The term of the new LBTT lease is 1 May 2019 – 30 April 2029.

The chargeable consideration will be all of the rent payable under the term of the new LBTT lease . That is, £120,000 per annum from 2019 until 2029.

The NPV is calculated using the £120,000 payable in each of the ten years extended. This results in a NPV of £997,992.64.

Using the rates and bands for leases, the total tax chargeable would be :

(£150,000 x 0%) + (£847,992.64 x 1%) = £8,479

In February 2015, parties agree in principle that they will enter into a 10 year lease with an annual rent of £100,000 starting on the date of entry. They aim to sign the formal lease on 1 May 2015. The agreement is substantially performed on 1 March 2015 by the tenant taking entry to the property.

The substantial performance of the agreement will give rise to a charge to SDLT.

The lease is subsequently signed off on 1 May 2015 under the terms proposed.

As there was substantial performance under SDLT on 1 March 2015, Article 4 of the TPO (‘ Contracts entered into after 1st May 2012 but before the commencement date’ ) is engaged. The contract was substantially performed without having been completed, therefore the contract is treated as if it were itself the transaction provided for in the contract. In this case the effective date of the transaction is when the contract is substantially performed. Where the contract is subsequently completed by a conveyance, both the contract and the transaction effected on completion are notifiable transactions.

The completion on 1 May 2015 is the first LBTT event so a return is due under Section 29 of LBTT(S)A. Article 4 is engaged for the calculation of tax. In this case the SDLT return and tax liabilities have been met. Where SDLT has already been charged and paid, LBTT is due only on any additional tax amount compared to the amount of SDLT already paid. Any changes or variations made to the lease will be captured in the three yearly review return and any subsequent LBTT would be paid at that time.

The effective date is used to determine when the three yearly review return will be due. This will be based on the third anniversary of the effective date and every three years thereafter. The third anniversary of the effective date of the transaction is 1 March 2018. The three yearly review return must be made by the filing date of 31 March 2018.

The SDLT calculation provides for a NPV of £831,659 and tax due and paid of £6,816 based on the annual rent of a £100,000 for this 10 year lease.

The LBTT calculation produces the same NPV and LBTT due. Accordingly there will be no LBTT payable.

Please see LBTT6002 - Effective date for lease transactions | Revenue Scotland for further guidance on substantial performance.

Last updated

29 September 2022

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• Business tax

Stamp Duty Land Tax Manual

Sdltm10000 - lease: contents.

The lease chapter is split into two parts

Part 1 England and Northern Ireland

Deals with concepts common to the law and practice of property in England and Northern Ireland and the Stamp Duty Land Tax (SDLT) legislation as it applies to those concepts and that practice ( SDLTM10020 to SDLTM17999);

From 1 April 2018 you’ll pay Land Transaction Tax (LTT) on any land transactions in Wales. LTT is operated by the Welsh Revenue Authority . You won’t have to pay Stamp Duty Land Tax (SDLT) or need to send HM Revenue and Customs (HMRC) a return for these transactions. For more detail about SDLT to LTT, read cross-border and transitional guidance.”

Part 2 Scotland

Deals with concepts common to the law and practice of property in Scotland and the SDLT legislation as it applies to those concepts and that practice. These pages have now been archived

From April 2015 SDLT will no longer apply to land transactions in Scotland, these will instead be subject to Land and Buildings Transaction Tax. Please see the Scottish Government website @ .

• SDLTM10005 Introduction: contents
• SDLTM11000 Chargeable Consideration: contents
• SDLTM12000 Notification: contents
• SDLTM13000 Calculation of Stamp Duty Land Tax: contents
• SDLTM14000 Term of a lease: contents
• SDLTM15000 Variation of leases: contents
• SDLTM16000 Reliefs and Exemptions: contents
• SDLTM17000 Miscellaneous Provisions: contents
• SDLTM17600 Introduction: contents
• SDLTM18000 Chargeable Consideration: contents
• SDLTM18200 Notification: contents
• SDLTM18400 Calculation of Stamp Duty Land Tax: contents
• SDLTM18700 Term of a lease: contents
• SDLTM19000 Variation of leases: contents
• SDLTM19300 Reliefs and Exemptions: contents
• SDLTM19600 Miscellaneous Provisions: contents

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