Example of SDLT Calculation for Lease with Variable Rent Over Ten Years

SDLT on Variable Lease Rent After the First Five Years

When SDLT is worked out on lease rent, the tax is based on the rent’s net present value. If the rent is variable, the actual rent after year 5 is not always used. Instead, the rent for later years is usually taken as the highest annual rent paid in any 12-month period during the first five years, which can mean later increases are ignored in the initial calculation.

• For a variable-rent lease, years 1 to 5 are based on the actual rent payable in those years.
• For years after year 5, SDLT uses the highest annual rent from the first five years, rather than the actual later rent.
• In the example, a 10-year lease starts at £100,000, rises to £130,000 in year 5, and then to £140,000 in year 9.
• For SDLT purposes, years 6 to 10 are treated as £130,000 a year, so the later rise to £140,000 is ignored in the initial NPV calculation.
• No revised return is needed at the end of year 5 in this example because the original return did not use estimated or contingent figures.

Scroll down for the full analysis.

SDLT on lease rent: how variable rent is treated after the first five years

This page explains a specific SDLT rule for leases where the rent changes over time. The point matters because SDLT on lease rent is based on the net present value of the rent, and the law does not always use the actual rent for every year of the lease. Where rent is variable, the treatment after year 5 can be counterintuitive.

What this rule is about

When SDLT is calculated on the grant of a lease, one part of the calculation looks at the rent payable over the term. That rent is converted into a net present value, usually called the NPV.

If the rent is fixed and known throughout the term, the calculation can follow the actual rent year by year. But where the rent is variable, special rules apply. The source material deals with one of those rules: what figure is used for years after the first five years of the lease.

The practical issue is that later increases in rent may be ignored for the initial SDLT calculation, even if the lease itself already sets them out.

What the official source says

The official example concerns a lease granted on 1 January 2018 for ten years. The rent is:

• £100,000 a year at the start of the lease
• rising to £130,000 a year on 1 January 2022
• rising again to £140,000 a year on 1 January 2026

That means the rent for the first five years is:

• Year 1: £100,000
• Year 2: £100,000
• Year 3: £100,000
• Year 4: £100,000
• Year 5: £130,000

The source says that because the rent is variable, the actual rent for years 6 to 10 is ignored when calculating the NPV. Instead, the rent used for those later years is the highest rent paid in any twelve-month period within the first five years.

In this example, that figure is £130,000 a year. So for SDLT purposes, years 6 to 10 are taken at £130,000 a year, not at the actual later figure of £140,000 a year.

The source also states that no revised return is needed at the end of year 5, because the original calculation did not rely on estimated or contingent figures.

What this means in practice

The key practical point is that the SDLT calculation does not always track the lease’s actual rent pattern after year 5.

For a variable-rent lease, you look at the first five years and identify the highest rent payable in any twelve-month period during that time. That figure is then used for the remaining years of the term when working out the NPV.

So even if the lease contains a built-in increase in year 6, 7, 8, 9 or later, that later increase may be ignored for this purpose if it falls outside the first five years.

In the example, the increase to £140,000 in year 9 does not affect the initial NPV calculation. SDLT is calculated as though years 6 to 10 were all charged at £130,000 a year.

This can produce a result that differs from the commercial reality of the lease. But that is the effect of the rule described in the source.

How to analyse it

If you are dealing with a lease where the rent changes over time, a sensible approach is:

• Identify whether the rent is variable rather than fixed throughout the term.
• Map out the rent actually payable in each of the first five years.
• Find the highest rent payable in any twelve-month period within those first five years.
• Use that highest first-five-year figure for the later years when calculating the NPV, rather than using the actual later rent.
• Check whether the original return used estimates or contingent figures. If it did not, the source indicates there is no need for a revised return at the end of year 5 in this type of case.

The important question is not simply, “What does the lease say the rent becomes later on?” The more relevant question for this rule is, “What was the highest annual rent in the first five years?”

Example

Illustration: a tenant takes a ten-year lease. The rent is £100,000 a year for the first four years, then £130,000 in year 5, then £140,000 from year 9.

For SDLT on rent:

• Years 1 to 5 are taken at their actual amounts.
• Years 6 to 10 are not taken at the actual later rent.
• Instead, years 6 to 10 are treated as £130,000 a year, because £130,000 is the highest rent in any twelve-month period within the first five years.
• The increase to £140,000 in year 9 is ignored for this calculation.

Why this can be difficult in practice

The main difficulty is that the result can seem artificial. A lease may clearly provide for a higher rent later in the term, yet that higher figure is left out of the NPV calculation if it falls outside the first five years.

Another point that can cause confusion is the statement that no revised return is required at the end of year 5. Readers may assume that a later rent increase always triggers a further filing obligation. This example shows that this is not necessarily so. On the facts given, there is no revised return because the original calculation did not contain estimated or contingent figures.

The source page is only an example, so it should be read as illustrating this specific variable-rent rule rather than as a complete statement of all lease-rent filing obligations in every situation.

Key takeaways

• For variable rent, the SDLT calculation for years after year 5 may use the highest annual rent from the first five years, not the actual later rent.
• A rent increase outside the first five years can be ignored in the initial NPV calculation.
• On the facts of this example, no revised return is needed at the end of year 5 because the original calculation used no estimated or contingent figures.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example of SDLT Calculation for Lease with Variable Rent Over Ten Years

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