When SDLT treats an arrangement as a lease that does not exist
Notional leases and stamp duty
SDLT can treat certain events as though a lease has been granted. The result can turn on what the parties did before the formal paperwork was complete.
- Agreements for lease can be treated as leases after substantial performance.
- Linked leases, some assignments and some rent increases have special rules.
- A licence is an exempt interest under the legislation, not itself a notional lease rule.
Scroll down for the full analysis.
Read the original guidance here:
When SDLT treats an arrangement as a lease that does not exist
When SDLT treats an arrangement as a lease that does not exist
Stamp duty can sometimes treat an arrangement as though parties had granted a lease, even though nobody has signed a new lease. People call this a notional lease. It can affect the SDLT position on an agreement, an assignment, linked leases or a rent increase.
What this rule is about
A notional lease does not create a real new lease for everyday property purposes. SDLT uses it for equivalent tax events.
That sounds abstract. HMRC may calculate SDLT by reference to a lease term, rent and the date the arrangement took effect.
The question is whether the law requires HMRC to treat something like a lease grant.
What the official source says
HMRC’s manual says that several parts of the SDLT legislation make SDLT treat an event as if parties had granted a lease. It also tells readers to consider the usual questions about whether a lease has a fixed term or no fixed end date, while remembering that there may be no actual lease document.
- An indefinite lease is first treated as a fixed one-year lease. If it continues, the assumed term increases year by year.
- Linked transactions can combine successive leases. The leases must cover the same, or almost the same, premises.
- A first non-exempt assignment of certain previously exempt leases can count as a new lease grant.
- Early performance can count as a grant. For an agreement for a lease, this applies if substantial performance occurs before completion.
- A rent increase taking effect within the first five years can count as a lease grant for the extra rent, unless an exception applies.
- The manual also points to the rule on licences to occupy land.
For an agreement for a lease, the statute is more specific. If parties substantially perform it before completing it, the law treats it as a lease from that date. If parties later grant a real lease under the agreement, SDLT generally looks at the notional lease instead.
What this means in practice
Do not assume that no new signed lease means no SDLT point. The arrangement and what the parties actually did may matter just as much.
For example, early occupation can matter. So can the first rent payment, or a payment of most of another agreed sum.
- Keep the agreement for lease, not just the final lease.
- Record the date the tenant first took possession.
- Check when rent and any premium were paid.
- Compare every later lease with the earlier one.
- Check whether connected leases cover the same premises.
- Read any rent variation alongside the original lease.
A licence needs care too. Finance Act 2003 says that a licence to use or occupy land is an exempt interest. That provision does not say that a licence becomes a notional lease.
How to analyse it
Start with the real-world event. Then find the SDLT provision that applies to it. Labels that emails or headings use will not settle the answer.
- What happened: an agreement, assignment, linked lease or rent change?
- Is there a specific rule that treats that event as a lease grant?
- What premises does the assumed lease cover?
- Does the arrangement have a fixed end date?
- If not, is it an indefinite arrangement that continues by notice or by periods?
- When did the parties take the step that triggered the rule?
- Was the agreement substantially performed before the final lease was signed?
- Is a later lease linked to, or substantially the same as, an earlier one?
For substantial performance, the statute points to possession or payment. Taking all, or almost all, of the property can be enough. Where rent is the only amount due, the first rent payment can also be enough.
Example
Amir signs an agreement for a shop lease. Before the parties sign the formal lease, he takes possession and starts paying rent. The law may then treat the agreement as a notional lease from the date of substantial performance. If the parties later grant the formal lease under that agreement, SDLT generally looks back to the notional lease rather than treating the signed document as a wholly separate lease grant.
Change one fact and the answer may change. If Amir has not taken possession, made no relevant payment and the agreement has not otherwise been substantially performed, the special notional-lease rule in this example has not yet applied.
Why this can be difficult in practice
This is the part people miss: the tax result may turn on conduct before the paperwork catches up. A tenant may be using premises under a short-term arrangement while the parties negotiate the final lease.
You might think calling that arrangement a licence settles it. It does not. The documents, the rights they give and what happened on the ground all need checking.
- Possession may be informal, partial or shared.
- Different documents may describe payments in different ways.
- A later lease may cover slightly different space or dates.
- Two leases may be linked even if the parties signed them at different times.
- A rent change may follow a term already written into the lease, rather than a later variation.
- HMRC’s manual includes a reference to licences, but the legislation must be read separately.
There is another practical issue. The supplied statutory material is current only to 17 November 2025. A transaction after that date needs a check against the current official legislation before relying on this page.
Key takeaways
- SDLT can assume a lease exists when no actual lease has been granted.
- Early possession or payment can be decisive for an agreement for lease.
- Check the legislation, not only the label given to the arrangement.
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 17A para 4 — treating indefinite leases as yearly fixed terms
- FA 2003 Schedule 17A para 5 — combining successive linked leases into one lease
- FA 2003 Schedule 17A para 11 — treating certain lease assignments as new grants
- FA 2003 Schedule 17A para 12A — notional lease after substantial performance of agreement
- FA 2003 Schedule 17A para 13 — rent increase treated as grant of lease
- FA 2003 section 44 — when a land contract is substantially performed
- FA 2003 section 48 — licences to use or occupy land are exempt
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
- Whether an arrangement has been substantially performed can depend on the timing of possession, rent payments and other facts.
- The manual lists Finance Act 2003 section 48(2) with notional leases, but that provision does not itself treat anything as a lease. It says a licence to use or occupy land is an exempt interest.
- The statutory position for a transaction after 17 November 2025 needs checking against the current official legislation.
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 lease agreement, side letters and any later signed lease.
- Dates when the parties signed, paid rent or other sums, and took possession.
- Details of any earlier or later lease of the same premises.
- The wording and effective date of any rent variation.
- Evidence showing whether the arrangement was a licence or a lease.
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 When SDLT treats an arrangement as a lease that does not exist [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 17A para 4 - treating indefinite leases as yearly fixed terms https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/4/2025-11-17 - FA 2003 Schedule 17A para 5 - combining successive linked leases into one lease https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/5/2025-11-17 - FA 2003 Schedule 17A para 11 - treating certain lease assignments as new grants https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/11/2025-11-17 - FA 2003 Schedule 17A para 12A - notional lease after substantial performance of agreement https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/12A/2025-11-17 - FA 2003 Schedule 17A para 13 - rent increase treated as grant of lease https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/13/2025-11-17 - FA 2003 section 44 - when a land contract is substantially performed https://www.legislation.gov.uk/ukpga/2003/14/section/44/2025-11-17 - FA 2003 section 48 - licences to use or occupy land are exempt https://www.legislation.gov.uk/ukpga/2003/14/section/48/2025-11-17 Guidance page from HMRC on this topic (guidance, not law): https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm10045 HOW I WANT YOU TO ANSWER 1. Work from the legislation above. Read it before answering. Guidance from HMRC is its 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 - Whether an arrangement has been substantially performed can depend on the timing of possession, rent payments and other facts. - The manual lists Finance Act 2003 section 48(2) with notional leases, but that provision does not itself treat anything as a lease. It says a licence to use or occupy land is an exempt interest. - The statutory position for a transaction after 17 November 2025 needs checking against the current official legislation. 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: When SDLT treats an arrangement as a lease that does not exist
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