Example of Overlap Relief Calculation for Lease with Overlapping Rent Periods

SDLT overlap relief on a replacement lease

When an old lease is surrendered and replaced, SDLT overlap relief stops the same rent being taxed twice. For the overlap period, the new lease NPV uses only the amount by which the new rent exceeds the old rent already taxed, and if the overlap ends part way through a lease year, that year must be apportioned carefully rather than ignored or treated as a full overlap year.

• In HMRC’s example, the old lease ran from 1 April 2004 to 31 March 2029 at £144,000 a year, and a new 150-year lease began on 1 October 2008 at £175,000 a year.
• The overlap period was 1 October 2008 to 31 March 2029, being 20 years and 6 months, so the new lease calculation used only the excess rent of £31,000 a year for the first 20 years.
• Year 21 had to be split: for the first 6 months only the excess rent applied, and for the second 6 months the full new rent applied, giving an adjusted figure of £103,000 for that year.
• After the overlap ended, the full rent of £175,000 a year was used for the rest of the new lease term.
• Using these adjusted figures, the NPV of the new lease was £2,889,750 and the SDLT on the rent was £27,397.
• HMRC’s calculator cannot handle this sort of mid-year overlap, so advisers may need to calculate the NPV manually, especially where the lease year must be apportioned month by month or day by day.

Scroll down for the full analysis.

SDLT overlap relief on a replacement lease: worked example where the overlap ends part way through a year

This page explains how overlap relief works when an existing lease is surrendered and replaced with a new lease, and part of the new lease term overlaps with rent that has already been taxed under the old lease. The example is important because it shows that you do not simply ignore the whole overlap year. If the overlap ends part way through a year, the rent has to be adjusted with care, sometimes month by month or day by day.

What this rule is about

SDLT is charged on the rent payable under a lease by reference to the lease’s net present value, usually called the NPV. Where an old lease is surrendered and a new lease is granted, there can be a period when the new lease covers time that was already covered by the old lease. Without relief, rent for that overlapping period could effectively be taxed twice.

Overlap relief is designed to prevent that. Broadly, when working out the NPV of the new lease, you reduce the rent for the overlap period by the amount of rent that was already taken into account under the old lease.

This example deals with a straightforward case where the new lease is not a variable rent lease. That matters because special rules can apply where rent varies, and the HMRC material says those rules are not relevant here.

What the official source says

The source example uses these facts:

• An old lease was granted on 1 April 2004 for 25 years, ending on 31 March 2029.
• The old lease rent was £144,000 a year.
• The NPV of the old lease was £2,373,337.
• SDLT of £22,233 was payable on the rent under the old lease.
• The old lease was surrendered and a new lease was granted on 1 October 2008 for 150 years.
• The new lease rent was £175,000 a year.

The overlap period runs from 1 October 2008 to 31 March 2029. That is 20 years and 6 months. During that period, the rent under the old lease has already been brought into the old lease NPV calculation, so the new lease NPV is calculated only on the excess of the new rent over the old rent for the overlap period.

HMRC’s calculation is:

• Years 1 to 20 of the new lease: use rent of £31,000 a year, being £175,000 less £144,000.
• Year 21 of the new lease: use rent of £103,000, because only the first 6 months of that year are within the overlap period.
• Years 22 to 150: use the full new rent of £175,000, because there is no overlap left.

For year 21, the source breaks the year into two halves:

• First 6 months: new rent £87,500 less old rent £72,000 = £15,500.
• Second 6 months: full new rent £87,500, because there is no overlap.
• Total for year 21: £15,500 + £87,500 = £103,000.

Using those adjusted rents, the NPV of the new lease is £2,889,750 and the SDLT due on the rent is £27,397.

The source also says HMRC’s calculator will not cope with this calculation, so it must be done manually.

What this means in practice

The practical point is that overlap relief does not wipe out rent for the overlap period. Instead, it reduces the rent for that period by the amount of rent already taxed under the old lease.

In this example, the new rent is higher than the old rent. So during the overlap period, SDLT on the new lease is charged only on the increase, not on the whole new rent.

That is why the first 20 years of the new lease use £31,000 rather than £175,000. The old rent of £144,000 has already been taxed through the old lease NPV, so only the extra £31,000 is brought into the new lease calculation for those years.

The example also shows that where the overlap stops part way through a year of the new lease, the rent for that year has to be split. You cannot simply treat the whole year as overlapped or non-overlapped if that would be inaccurate.

For conveyancers and advisers, this matters because a standard calculator may not produce the right answer. If the overlap ends mid-year, the NPV input may need to be built manually using apportioned figures.

How to analyse it

A sensible way to work through a case like this is:

• Identify the old lease term and the new lease start date.
• Work out the exact overlap period between the new lease and the unexpired part of the old lease.
• Confirm what rent under the old lease was included in the original NPV calculation.
• Check whether the new lease is a variable rent lease. If it is, different rules may need to be considered. In this example, HMRC says it is not.
• For each part of the new lease term that falls within the overlap period, use only the excess of new rent over old rent.
• If the overlap ends part way through a lease year, apportion that year carefully on a month by month or day by day basis.
• After the overlap ends, use the full rent under the new lease.
• Calculate the NPV from those adjusted rent figures, rather than relying blindly on a calculator.

The key question is not simply “what is the rent under the new lease?” but “how much of that rent relates to a period already taxed under the old lease?”

Example

Illustration based on the official example:

A tenant gives up a 25-year lease early and takes a much longer replacement lease over the same property. The old lease still had 20 years and 6 months left to run. The old rent was £144,000 a year and the new rent is £175,000 a year.

For the period covered by both leases, SDLT on the new lease is not charged on the full £175,000. Instead, it is charged only on the extra £31,000 a year, because the £144,000 old rent was already reflected in the old lease SDLT calculation.

But the overlap ends halfway through year 21 of the new lease. So year 21 must be split:

• For the first half of year 21, only the excess rent is used.
• For the second half of year 21, the whole new rent is used.

That produces an annual figure of £103,000 for that year for NPV purposes.

Why this can be difficult in practice

The arithmetic can be awkward where the overlap does not match whole lease years. A simple annual approach may give the wrong answer if part of a year is overlapped and part is not.

Another difficulty is identifying exactly what rent under the old lease was included in the earlier NPV calculation. Overlap relief works by reference to rent already brought into account. If that starting point is misunderstood, the new lease calculation may be wrong.

The source also flags a systems issue: HMRC’s calculator cannot handle this example. That is a practical warning that some lease calculations need manual treatment even where the legal rule is clear.

Finally, this example is expressly limited to a new lease that is not a variable rent lease. Where rent is variable, the analysis may not be the same.

Key takeaways

• Overlap relief reduces the rent used for the new lease NPV calculation so that rent already taxed under the old lease is not taxed again.
• If the overlap ends part way through a year, that year must be apportioned carefully rather than treated as all overlap or no overlap.
• In some lease cases the SDLT calculation has to be done manually, because the standard calculator will not cope.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example of Overlap Relief Calculation for Lease with Overlapping Rent Periods

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