Overlap Relief Example: Calculating SDLT for Lease Surrender and Renewal

SDLT overlap relief on a replacement lease

When an old lease is surrendered and replaced by a new lease over the same property, SDLT overlap relief helps prevent the same rent being taxed twice. For the period that overlaps with the unexpired term of the old lease, the new lease rent is reduced to the amount by which it exceeds the rent already taken into account for SDLT on the old lease. After that overlap period ends, the full new rent is used in the net present value calculation.

• Overlap relief applies where part of the new lease term covers a period that would still have been covered by the old lease.
• In HMRC’s example, the old lease rent was £144,000 a year and the new lease rent was £175,000 a year, with an 11-year overlap.
• For the first 11 years of the new lease, only the extra £31,000 a year is used in the SDLT rent calculation, not the full £175,000.
• From year 12 onwards, once the old lease would have ended, the full £175,000 a year is used.
• This example only deals with fixed rent; different rules may apply if the rent is variable.
• HMRC says its calculator cannot do this calculation, so the rent profile and net present value may need to be worked out manually.

Scroll down for the full analysis.

SDLT overlap relief on a replacement lease: how the rent calculation works

This page explains how overlap relief works where an existing lease is surrendered and replaced by a new lease over the same property, and part of the new lease period overlaps with the remaining term of the old lease. The point matters because SDLT on lease rent is charged by reference to the net present value of the rent, and without overlap relief the same rental period could effectively be taxed twice.

What this rule is about

When a tenant gives up an existing lease and takes a new one, there may be an overlap between:

• the period still left to run on the old lease, and
• the early years of the new lease.

If rent under the old lease has already been taken into account for SDLT, the overlap rules are intended to prevent that same rental value being counted again in full when calculating SDLT on the new lease.

The source material gives an example of how to do that calculation where the new lease is granted after surrender of the old lease, and the rents are fixed rather than variable.

What the official source says

The official example starts with an old lease granted on 1 April 2004 for 25 years, ending on 31 March 2029. The annual rent under that old lease is £144,000. Its net present value is given as £2,373,337, producing SDLT on the rent of £22,233.

That old lease is then surrendered and replaced on 1 April 2018 with a new lease for 150 years at an annual rent of £175,000.

The overlap period runs from 1 April 2018 to 31 March 2029, which is 11 years. During that 11-year overlap period, the amount already reflected in the SDLT calculation for the old lease is the old rent of £144,000 a year.

Because of that, the new lease rent is not taken at £175,000 for those first 11 years. Instead, for overlap relief purposes, the rent used in the new lease NPV calculation for years 1 to 11 is only the excess over the old rent, namely £31,000 a year (£175,000 less £144,000).

For years 12 to 150 of the new lease, the full new rent of £175,000 is used.

The source also states that this is not a lease with variable rent, so the special rules in Schedule 17A paragraph 7 Finance Act 2003 do not apply.

HMRC also notes that its calculator cannot perform this calculation and that it must be done manually.

What this means in practice

The practical effect is that overlap relief does not wipe out the rent charge on the new lease for the overlap period altogether. Instead, it reduces the rent taken into account for that period to the amount by which the new rent exceeds the old rent already taxed.

In this example:

• for the first 11 years of the new lease, only £31,000 a year is used in the NPV calculation, not £175,000, and
• after the old lease would have expired, the full £175,000 a year is used.

That reflects the idea that SDLT has already been charged on rent of £144,000 for the overlapping period under the old lease. The new calculation therefore only brings in the additional rental value for that period.

This matters particularly where:

• the old lease still had a significant term left to run,
• the new lease is much longer than the old one, or
• the new rent is higher than the old rent.

It also matters administratively. If the calculation cannot be handled by HMRC’s calculator, the return still needs to reflect the legally correct figure. That means the rent profile may need to be worked out separately and the NPV calculated on that basis.

How to analyse it

A sensible way to approach this type of case is:

1. Identify the old lease and confirm its remaining term at the date it is surrendered.
2. Identify the new lease and its rent terms.
3. Work out the overlap period, being the period when the old lease would still have been running had it not been surrendered.
4. Ask what rent under the old lease was already included in the earlier SDLT rent calculation.
5. For the overlap period, use only the excess of the new rent over that old rent already taken into account.
6. For the period after the old lease would have ended, use the full new rent.
7. Then calculate the NPV of the new lease rent on that adjusted basis.

Two points are especially important.

First, this example is dealing with fixed rent, not variable rent. The source expressly says the special variable rent rule is not in point. So the method shown here should not be assumed to apply unchanged where the rent can vary in a way that engages separate statutory rules.

Second, the comparison is with the rent already included in the first NPV calculation. The focus is not simply on what rent was contractually payable under the old lease in the abstract, but on the rent figure that formed part of the SDLT analysis of that old lease.

Example

Illustration based on the official example:

A tenant took a 25-year lease in 2004 at £144,000 a year. In 2018, with 11 years still left to run, that lease is surrendered and replaced by a 150-year lease at £175,000 a year.

Without overlap relief, the NPV calculation for the new lease might appear to use £175,000 a year from year 1 onwards. But that would ignore the fact that the first 11 years correspond to a period for which rent of £144,000 a year has already been brought into charge on the old lease.

So the adjusted rent profile is:

• years 1 to 11: £31,000 a year
• years 12 to 150: £175,000 a year

The NPV of the new lease is then calculated using that stepped rent profile.

Why this can be difficult in practice

The source material is clear on the mechanics of this example, but real cases can still be awkward.

One difficulty is calculation. HMRC’s own manual says its calculator will not cope with this scenario, so the figures must be worked out manually. That increases the risk of error, especially where the overlap period does not align neatly with rent review dates or where the rent structure is more complicated than a simple fixed annual amount.

Another difficulty is identifying exactly what amount from the old lease has already been included in the earlier NPV calculation. In straightforward fixed-rent cases that may be obvious. In more complicated cases, it may require careful checking of the earlier SDLT position.

A further point is that this example does not deal with variable rent. The source expressly excludes that situation. If the new lease includes variable rent, a different analysis may be needed and this example should not be treated as a complete answer.

Finally, overlap relief is highly dependent on dates. The start date of the new lease, the notional expiry date of the old lease, and the length of the overlap period all directly affect the calculation.

Key takeaways

• Where a surrendered lease is replaced by a new lease, SDLT on the new lease rent may be reduced for any overlap period so that rent already taxed under the old lease is not counted again in full.
• In the official example, the new lease rent for the overlap period is reduced to the excess of the new rent over the old rent already included in the earlier NPV calculation.
• If HMRC’s calculator cannot handle the calculation, the correct rent profile and NPV still need to be worked out manually.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Overlap Relief Example: Calculating SDLT for Lease Surrender and Renewal

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