Renunciation and Grant of New Lease: Example and Tax Update

SDLT on replacing an old lease with a new lease

If an existing lease is ended and replaced with a new lease, SDLT will usually treat the new lease as a fresh land transaction rather than a simple change to the old one. This can create a new tax charge, especially where the new lease increases the term, the rent, or both. The legal effect of the documents matters more than the informal label used by the parties.

• A surrender, renunciation, or other ending of the old lease followed by a new grant can trigger a new SDLT analysis.
• You should not assume SDLT is charged only on the extra term or extra rent; the new lease may be assessed on its own terms.
• Key issues include whether there is a new chargeable transaction, the correct effective date, and what rent and term are used in the calculation.
• A true variation of an existing lease may be treated differently, so the distinction between variation and surrender and regrant is important.
• Commercial descriptions such as “lease extension” or “variation” are not decisive; the legal substance of the arrangement determines the tax result.
• The HMRC source is archived and notes that SDLT no longer applies to Scottish land transactions from April 2015, where LBTT applies instead.

Scroll down for the full analysis.

SDLT and lease variations: when giving up an old lease and taking a new one can create a new tax charge

This page is about a narrow but important SDLT point. If an existing lease is given up and a new lease is granted instead, the tax treatment may change because SDLT looks at the new lease as a fresh land transaction. That matters where the new lease increases the term, the rent, or both. The official source here is an archived HMRC manual page referring to an example of that situation.

What this rule is about

In leasehold transactions, parties sometimes change the commercial deal by replacing an existing lease with a new one. This may happen to extend the lease term, increase the rent, or rewrite other terms. Legally, that is not always treated as a mere amendment. If the old lease is renounced or surrendered and a new lease is granted, SDLT analysis usually starts again by looking at the new lease as a separate transaction.

The practical issue is simple: changing a lease can trigger SDLT in a way that a reader may not expect. A person may think they are only varying an existing arrangement, but if the legal steps amount to ending one lease and granting another, the tax consequences can be different.

What the official source says

The source is an HMRC SDLT manual page headed as an example dealing with the renunciation of an existing lease and the grant of a new lease to increase the term and/or the rent. The page is archived and also notes that, from April 2015, SDLT no longer applies to land transactions in Scotland, which are instead within LBTT.

Although the extracted text provided here is only the heading and archive notice, the heading itself identifies the core point HMRC was addressing: where an existing lease is given up and replaced by a new lease with a longer term or higher rent, the transaction is analysed as a new lease grant rather than simply as a continuation of the old lease.

What this means in practice

If a lease is genuinely replaced, you should not assume SDLT is only due on the increase. The starting point is usually to consider the new lease on its own terms. That can affect:

• whether there is a chargeable land transaction at all;
• what the effective date is;
• what rent and term are used for SDLT calculations;
• whether any relief or special treatment applies because an earlier lease is being given up.

The fact that the commercial relationship continues between the same landlord and tenant does not by itself prevent a new SDLT charge. The legal form matters. If the old lease ends and a new one begins, SDLT may treat that as a fresh grant.

This point is especially important for conveyancers and advisers documenting lease changes. The wording of the documents, and whether the parties are varying the existing lease or replacing it, can alter the tax result.

How to analyse it

A sensible way to approach this kind of case is to ask the following questions:

• Is the existing lease merely being varied, or is it being surrendered, renounced, or otherwise brought to an end?
• Is there a new lease being granted in legal terms?
• Does the new arrangement increase the term, the rent, or both?
• Are the parties the same, or has anything else changed that may affect the character of the transaction?
• What is the correct effective date for the new lease?
• Does the wider SDLT framework contain any rule dealing with linked treatment, overlap, or relief in the particular circumstances?

The key distinction is between a variation of an existing lease and the ending of one lease followed by the grant of another. The source heading points to the second situation. That is why the tax analysis can be materially different.

Example

Illustration: a tenant holds a lease with five years left to run. The landlord and tenant agree to replace it with a new lease for a longer period and at a higher rent. If the legal steps amount to the old lease being given up and a new lease being granted, SDLT analysis is likely to focus on the new lease, not just on the extra years or extra rent.

By contrast, if the arrangement is only a limited variation of the existing lease and does not amount to a surrender and regrant, the analysis may be different. Whether that is so depends on the legal effect of the documents and facts.

Why this can be difficult in practice

The difficulty is that parties often describe a transaction informally as a “lease extension” or a “variation”, but SDLT depends on the legal substance. In property law, some changes are significant enough to amount to a surrender and regrant even if the parties did not focus on that label. A tax analysis therefore cannot rely only on commercial descriptions.

This can also be difficult because the source provided here is only an archived heading rather than the full worked example. That means the broad principle is clear, but the detailed computational treatment is not set out in the supplied text. If a reader needs the exact SDLT calculation in a particular case, the full legislative framework and any directly relevant HMRC material would need to be checked.

There is also a jurisdiction point. The source itself states that SDLT ceased to apply to Scottish land transactions from April 2015. So even if the lease issue is similar in concept, the tax regime for Scottish land is now LBTT, not SDLT.

Key takeaways

• If an old lease is given up and a new lease is granted, SDLT may treat that as a fresh taxable lease transaction.
• Changes to term or rent can matter because they may point to a new lease rather than a simple variation.
• For Scottish land transactions from April 2015 onward, SDLT is not the relevant tax; LBTT is.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Renunciation and Grant of New Lease: Example and Tax Update

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