Stamp duty on a turnover lease: HMRC’s variable-rent example
Variable rent at year five
A turnover lease starts with estimated rent, but the SDLT calculation must be reviewed at the end of the fifth year.
- Use actual figures where known
- Revise unknown amounts reasonably
- Use the highest first-five-year rent for later years
Scroll down for the full analysis.
Read the original guidance here:
Stamp duty on a turnover lease: HMRC’s variable-rent example
Stamp duty on a turnover lease: HMRC’s variable-rent example
If lease rent is a share of business turnover, you may not know the final rent when you sign. Stamp duty land tax uses an estimate initially. Then, at the end of year five, you must check the figures again. That review can mean more tax.
What this rule is about
Lease stamp duty can apply to rent as well as any premium, whether the rent is fixed, variable, or uncertain when the lease is signed. Both can matter. The calculation converts rent into a net present value, often called NPV. This puts rent due in different years into one figure.
Turnover rent changes with the business. That makes it variable or uncertain rent. You cannot wait until the lease ends to work out the first SDLT figure.
Instead, the law takes a practical approach: it estimates what is not yet known. It also provides a special rule for rent after year five.
What the official source says
HMRC’s example concerns a seven-year lease granted on 1 April 2018. The yearly rent is 10% of the tenant’s turnover. Initial business-plan estimates put the first five years’ rent between £22,500 and £27,000.
- Use the estimated rent for each of the first five years.
- For years six and seven, use the highest estimated rent in any twelve-month period within those first five years.
- Here, that highest figure is £27,000, from months 49 to 60.
- The first SDLT calculation therefore uses £27,000 for both years six and seven.
- HMRC’s example gives an initial NPV of £151,193.
The legislation supports that calculation method. Before the fifth anniversary, the rules for estimates deal with uncertain rent. After that point, the law treats later yearly rent as the highest amount for a consecutive twelve-month period in the first five years.
That distinction matters. In this example, years six and seven do not use the original forecasts of £30,000 and £31,000.
What this means in practice
The fifth anniversary is more than a date in the lease diary. It marks a required review point, even where the final rent for year five is still unknown. Use actual figures instead of estimates wherever they are available.
- Keep the original turnover forecast used for the SDLT calculation.
- Collect accounts and turnover records as each lease year ends.
- At the end of year five, replace estimates with known rent figures.
- Make a fresh estimate for any part that remains unknown.
- Find the highest actual or estimated twelve-month rent within the first five years.
- Use that figure for the later lease years.
In HMRC’s example, accounts are ready for years one to four by 31 March 2023. Year five turnover is still unknown. The revised figures are £23,035, £21,252, £24,077, £27,045 and an estimated £25,000.
The highest figure is now £27,045, not £27,000. So years six and seven both use £27,045. The revised NPV is higher than the figure first reported.
How to analyse it
The key question is whether rent varies under the lease, depends on an event that remains unknown, or cannot be quantified until the relevant turnover records are available. Start with the lease wording, not the latest rent invoice.
- Check the lease start date and the end of its fifth year.
- Identify how the rent changes, such as a percentage of turnover.
- List the actual rent for each completed year.
- Separate those figures from estimates for unfinished or unknown periods.
- Identify the highest consecutive twelve-month amount in the first five years.
- Recalculate the NPV using the revised figures.
- Compare it with the NPV on the original SDLT return.
Where the revised calculation means extra tax, the law requires a further return within 30 days of the review trigger and payment by that filing date. The rates used remain those in force on the lease’s effective date.
For this historic example, HMRC’s manual says that, once the revised calculation has been made and the additional information is ready, you should send it by letter to the Stamp Office. That is HMRC’s stated process for the example.
Example
On 1 April 2018, a business takes a seven-year lease. Rent is 10% of turnover. The first SDLT return uses estimated rent of £22,500, £22,500, £23,000, £25,000 and £27,000 for years one to five, while the later years follow the highest first-five-year amount. It uses £27,000 again for years six and seven. The reported NPV is £151,193.
By 31 March 2023, actual rents for years one to four are known. They are £23,035, £21,252, £24,077 and £27,045. Year five is still estimated at £25,000. Since £27,045 is now the highest first-five-year figure, it is also used for years six and seven.
HMRC’s revised NPV is £151,686. As this is higher, the manual tells you to report the new figure by 1 May 2023.
Later, year five rent becomes known on 1 September 2023: £28,673. That becomes the highest first-five-year amount. HMRC’s example gives a final NPV of £157,383 and tells you to report it by 1 October 2023, with any extra tax paid to avoid penalties building up.
Why this can be difficult in practice
Most people focus on the rent expected in the final years. That is not the deciding figure here. The special rule looks back at the highest twelve-month rent in the first five years.
Working out what is known can also be less simple than it sounds. Accounts may be unfinished, turnover may be disputed, or the lease may contain detailed rules about what counts as turnover. Deciding which rent figure is known can therefore require careful review. That can take time.
- Do not assume an old forecast remains correct at year five.
- Do not use a lower average when the rule asks for the highest twelve-month amount.
- Do not ignore year five merely because its accounts are not ready.
- Do not treat an HMRC manual as legislation, although it shows HMRC’s approach.
- Keep evidence showing why each estimate was reasonable at the time.
Key takeaways
- Variable turnover rent needs an initial SDLT estimate.
- Later years use the highest first-five-year twelve-month rent.
- Review the calculation when year five ends.
Technical analysis
For advisers, and for anyone who wants to check the law behind this page. You do not need this section to understand the guidance above.
Legislation
- FA 2003 Schedule 5 para 2 — tax on lease rent uses net present value
- FA 2003 Schedule 5 para 3 — how to calculate rent’s net present value
- FA 2003 section 51 — estimating contingent uncertain or unknown consideration
- FA 2003 Schedule 17A para 7 — working out variable or uncertain lease rent
- FA 2003 Schedule 17A para 8 — later adjustment when uncertain rent becomes known
Official guidance
The pages below are HMRC’s guidance. Guidance is not law. It sets out how HMRC reads the legislation, and it is not binding on you, on a tribunal or on a court. Where guidance and the legislation differ, the legislation wins. HMRC can also change or withdraw guidance, and it may not cover your facts.
Where this is not settled
- The right estimate for a future turnover-based rent depends on the evidence available at the time.
- The example does not explain every possible lease term, rent-review clause or linked transaction.
- HMRC’s instruction to report by letter is an administrative instruction in this historic example, rather than the wording of the legislation itself.
Evidence you would need
This kind of case is decided on the facts of the individual property. These are the records that usually settle it, and the ones an adviser would ask you for.
- The signed lease and its turnover-rent clause
- The lease start date and length
- The original rent estimates and SDLT calculation
- Accounts and turnover figures for each completed year
- The basis for any revised estimate
- Copies of the original and later SDLT returns or letters
Explore this with an AI
Readers often want to test their own situation. Copy the prompt below into ChatGPT, Claude or Gemini. It hands the model the actual legislation for this page rather than letting it answer from memory, and tells it to be explicit about what is uncertain. What comes back is information, not advice – check it against the links above.
I am researching UK Stamp Duty Land Tax (SDLT), which applies in England and Northern Ireland. MY QUESTION Stamp duty on a turnover lease: HMRC's variable-rent example [Replace this with your own situation: what you are buying, the price, the dates, who the buyer is, and what you plan to do with the property.] THE LAW THIS TURNS ON - FA 2003 Schedule 5 para 2 - tax on lease rent uses net present value https://www.legislation.gov.uk/ukpga/2003/14/schedule/5/paragraph/2/2025-11-17 - FA 2003 Schedule 5 para 3 - how to calculate rent's net present value https://www.legislation.gov.uk/ukpga/2003/14/schedule/5/paragraph/3/2025-11-17 - FA 2003 section 51 - estimating contingent uncertain or unknown consideration https://www.legislation.gov.uk/ukpga/2003/14/section/51/2025-11-17 - FA 2003 Schedule 17A para 7 - working out variable or uncertain lease rent https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/7/2025-11-17 - FA 2003 Schedule 17A para 8 - later adjustment when uncertain rent becomes known https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/8/2025-11-17 HMRC's guidance page on this topic (guidance, not law): https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm13225 HOW I WANT YOU TO ANSWER 1. Work from the legislation above. Read it before answering. HMRC guidance is HMRC's view of the law, not the law, and does not bind a tribunal or a court. 2. Tell me what the rule actually requires, in plain English. 3. Tell me which facts decide the answer, and which facts would change it. 4. Tell me what evidence I would need to support the position. 5. Be explicit about anything unsettled or fact-sensitive. Do not guess. 6. Your training data has a cutoff and SDLT rates and reliefs change at fiscal events. Say so if you are not sure the law is current. POINTS ALREADY KNOWN TO BE UNCERTAIN ON THIS TOPIC - The right estimate for a future turnover-based rent depends on the evidence available at the time. - The example does not explain every possible lease term, rent-review clause or linked transaction. - HMRC's instruction to report by letter is an administrative instruction in this historic example, rather than the wording of the legislation itself. Do not give me a conclusion you cannot support from the provisions above.
Legislation links show Finance Act 2003 as it stood on 2025-11-17. The law may have changed since, and the rules that apply are those in force on the date of your transaction. The official guidance this page is based on is here.
This page was last updated on 1 September 2026
Useful article? You may find it helpful to read the original guidance here: Stamp duty on a turnover lease: HMRC’s variable-rent example
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