SDLT on leases depends on whether a lease is being newly granted or an existing one is being bought. For a new lease, tax is charged on the premium at the normal rates and, separately, on the net present value (NPV) of the rent payable over the term.
Do you pay SDLT on a new lease or an existing one?
- Buying an existing lease (an assignment — how most leasehold flats are sold): SDLT is charged on the price only, like a freehold. The rent is ignored.
- Grant of a new lease by the landlord: SDLT can be due on the premium and on the rent.
Tax on the premium
A premium is a lump sum paid for the lease. It is taxed at the same rates as a purchase price — residential or non-residential, including any higher rates or surcharges for residential property.
How is SDLT on lease rent worked out?
The NPV is the total rent over the lease term, discounted at 3.5% a year. For years 6 onwards, the rent is taken as the highest rent payable in any 12 months of the first five years. SDLT is then charged on the NPV in bands:
| NPV — residential | Rate |
|---|---|
| Up to £125,000 | 0% |
| Above £125,000 | 1% |
| NPV — non-residential | Rate |
|---|---|
| Up to £150,000 | 0% |
| £150,001 to £5 million | 1% |
| Above £5 million | 2% |
The 2% non-resident surcharge also applies to the rent on residential leases. The higher rates for additional dwellings do not.
Worked examples
| Lease | NPV of rent | SDLT on rent |
|---|---|---|
| Residential, £5,000 a year for 99 years | £138,117 | £131 |
| Office, £50,000 a year for 10 years | £415,830 | £2,658 |
If the office lease also had a £100,000 premium, there would be no extra tax on the premium — it falls within the 0% non-residential band up to £150,000.
Later returns on leases
Some leases need further returns: when rent is uncertain or variable and is later fixed, when a lease is extended or held over after the term ends, or when it is varied. Your conveyancer will tell you if one is likely.
Lease calculations involve detailed rules on rent reviews, VAT and linked leases. This guide is a summary for guidance.