Understanding When Stamp Duty Land Tax is Chargeable on Property Contracts

When SDLT can be triggered before completion by early payment

SDLT can become payable before legal completion if a land contract is treated as “substantially performed”. This can happen where the buyer has paid most of the price early, where the first rent payment has been made, or where the deal structure shows that, in substance, the consideration has effectively already been paid.

• For contracts with no rent, HMRC’s usual benchmark is that paying 90% or more of the consideration means the contract has been substantially performed.
• If the only consideration is rent, substantial performance normally happens when the first rent payment is made.
• If the deal includes both rent and a premium or other non-rent payment, SDLT is triggered at the earlier of the first rent payment or payment of substantially all of the non-rent amount.
• HMRC may look at the real substance of the arrangement, not just the wording of the contract, especially where payment terms appear artificial or heavily deferred.
• In practice, you need to identify exactly what counts as consideration under the contract and check when enough of it has been paid to trigger SDLT.

Scroll down for the full analysis.

When SDLT is triggered because most of the price has been paid before completion

This page explains one way a land contract can become chargeable to SDLT before formal completion. The issue is “substantial performance”. In particular, it looks at the rule that a contract may be substantially performed if the buyer has paid substantially all of the consideration. This matters because SDLT can be triggered at that earlier point, even though legal completion has not yet happened.

What this rule is about

Under the SDLT rules, tax is not always deferred until completion. A contract for a land transaction can become chargeable earlier if it is “substantially performed”. One form of substantial performance is where the buyer has paid a substantial amount of what the contract requires them to give in return for the property.

The key question is not simply whether money has changed hands. The question is whether, looking at the contractual consideration, the buyer has paid enough for the contract to be treated as substantially performed for SDLT purposes.

This is especially important where:

• completion is delayed after exchange of contracts,
• the buyer pays most of the price early,
• the transaction includes rent, such as the grant of a lease, or
• the payment structure is unusual.

What the official source says

The HMRC manual says a contract will be substantially performed before completion if the purchaser has paid substantially all of the consideration specified in the contract.

It then distinguishes between three situations.

• If none of the consideration is rent, substantial performance happens when the whole, or substantially the whole, of the consideration has been paid or provided.
• If the only consideration is rent, substantial performance happens when the first rent payment is made.
• If the consideration includes both rent and something else, substantial performance happens at the earlier of:
  • the point when the whole, or substantially the whole, of the non-rent consideration has been paid or provided, and
  • the first payment of rent.

The manual also explains what “substantially the whole” means. HMRC’s starting point is that this means 90% or more of the total consideration due under the contract. But the manual adds an important qualification: in some cases, even if less than the full contractual amount has been paid, the transaction may in substance involve payment of the whole consideration.

HMRC gives an example of an artificial payment structure. A property worth £10 million is sold under a contract stating a price of £15 million, with £10 million payable now and the remaining £5 million payable in 99 years. The manual indicates that in a case like that, the circumstances may show that in substance the whole consideration has already been paid.

What this means in practice

The practical effect is that SDLT can become due before completion if the buyer has effectively paid enough under the contract. Once substantial performance occurs, the transaction is treated as chargeable at that point.

For a simple freehold purchase with no rent, the main practical test is whether at least about 90% of the contractual consideration has been paid or provided. If it has, the contract may be substantially performed even though completion is still to come.

For a lease where the only consideration is rent, the trigger is much earlier. The first rent payment is enough.

For mixed consideration, such as a lease premium plus rent, there are two possible triggers. SDLT is brought forward by whichever happens first:

• the first rent payment, or
• payment of the whole or substantially the whole of the non-rent consideration.

This means parties cannot assume that because only part of the premium has been paid, SDLT is not yet in point. If rent has already started, that alone may trigger substantial performance.

How to analyse it

A sensible way to analyse the issue is to work through these questions.

• What is the consideration under the contract?
• Does that consideration consist only of a price, only of rent, or a mixture of both?
• If there is non-rent consideration, how much of it has actually been paid or provided?
• Has any rent payment been made?
• Does the payment pattern reflect the real substance of the deal, or is part of the stated consideration deferred in a way that may not be commercially real?

When looking at the 90% point, the manual treats that as the normal benchmark for “substantially the whole”. But it is not presented as a rigid rule that overrides the substance of the transaction. If the contract says one thing but commercially the buyer has already paid what really matters, HMRC may regard the contract as substantially performed anyway.

That does not mean every deferred payment can be ignored. The source only supports the point that extreme or artificial arrangements may need to be tested by substance as well as arithmetic.

Example

Illustration 1: A buyer agrees to buy freehold land for £500,000. Completion is due in three months. Before completion, the buyer pays £460,000. Because that is at least 90% of the consideration, the contract is likely to have been substantially performed before completion.

Illustration 2: A tenant takes a lease and the only consideration is annual rent. The lease has not yet formally completed, but the tenant makes the first rent payment. On the HMRC approach in the source material, that first rent payment is enough for substantial performance.

Illustration 3: A lease is granted for a premium plus rent. Only part of the premium has been paid, but the first rent payment has already been made. The first rent payment is enough to trigger substantial performance, even though the premium has not been paid in full.

Why this can be difficult in practice

The main difficulty is identifying the relevant consideration and deciding whether the payment made is truly “substantially the whole” of it.

Several points can be fact-sensitive:

• Whether a payment counts as consideration under the contract at all.
• Whether rent forms part of the consideration and, if so, whether any rent has actually been paid.
• Whether a deferred amount is a genuine part of the commercial price, or whether the structure is such that in substance the whole price has already been given.

The source material gives a clear numerical benchmark of 90%, but also says that substance can override form in unusual cases. That means borderline cases may not be resolved by arithmetic alone. The more artificial the deferred element appears, the more likely it is that the real substance of the arrangement will matter.

Another practical difficulty is timing. If substantial performance happens before completion, the SDLT position must be considered at that earlier date. Parties who focus only on completion can miss the real chargeable event.

Key takeaways

• SDLT can be triggered before completion if a contract is substantially performed.
• Where there is no rent, paying 90% or more of the consideration will normally amount to paying “substantially the whole”.
• Where rent is involved, the first rent payment can itself trigger substantial performance, and unusual payment structures may be tested by their real substance.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding When Stamp Duty Land Tax is Chargeable on Property Contracts

View all HMRC SDLT Guidance Pages Here