Understanding SDLT on Tenant Deposits and Loans in Lease Agreements

When a tenant’s deposit or loan counts towards SDLT on a lease

A tenant’s deposit or loan may be treated as chargeable consideration for SDLT, rather than just refundable security, if repayment depends on the tenant doing or not doing something. If the amount is above the statutory limit, the whole amount is treated like a premium for the lease or assignment, and SDLT is worked out on that amount separately from any SDLT due on the rent.

• This rule applies to deposits or loans linked to the grant or assignment of a lease, even if the money is paid to a third party rather than the landlord.
• The key test is whether repayment is contingent on the tenant’s conduct, compliance or performance under the lease.
• The amount is ignored for SDLT if it does not exceed twice the relevant maximum rent.
• For a new lease, the relevant maximum rent is the highest rent payable in any continuous 12-month period during the first five years of the term; for an assignment, it is based on the first five years of the unexpired term.
• If the amount exceeds the limit, the full deposit or loan is treated as consideration other than rent, added to any actual premium, and later repayment is ignored for SDLT purposes.
• In practice, the legal effect of the payment matters more than its label, so rent deposits and similar security arrangements can still trigger SDLT.

Scroll down for the full analysis.

When a tenant’s deposit or loan is treated as SDLT chargeable consideration

This page explains a specific SDLT rule for leases. In some cases, a deposit or loan paid by a tenant is not ignored as mere security. Instead, SDLT treats it as if it were a premium paid for the lease. That can increase the tax due, even if the money may later be repaid.

What this rule is about

Normally, SDLT on a lease looks separately at rent and at any premium or other consideration given for the grant or assignment of the lease. A practical difficulty arises where a tenant pays a large deposit or makes a loan connected with the lease. On its face, that payment may look repayable and therefore not part of the price for the transaction.

The rule in the official material is aimed at cases where repayment of the deposit or loan depends on the tenant doing, or not doing, something. In that situation, the legislation can treat the amount as chargeable consideration other than rent. In SDLT terms, it is treated like a premium.

This matters because SDLT is then worked out on that amount as well as on any actual premium and, separately, on the net present value of the rent where relevant.

What the official source says

Since 19 May 2005, where a tenant pays a deposit or makes a loan, whether to the landlord or to someone else, and repayment is contingent on something being done or not done by the tenant, the amount is treated as consideration other than rent for the grant of the lease.

The same approach applies if an assignee of a lease pays the deposit or makes the loan in connection with the assignment.

There is an important exception. The deposit or loan is ignored for SDLT purposes if its amount does not exceed twice the relevant maximum rent.

For a new lease, the relevant maximum rent is the highest rent payable for any continuous 12-month period during the first five years of the lease term.

For an assignment, the relevant maximum rent is the highest rent payable for any continuous 12-month period during the first five years of the term that remain unexpired at the date of assignment.

If the rule applies, SDLT is calculated on the full amount of this deemed or notional premium. Any later repayment of the deposit or loan is ignored when calculating the tax.

What this means in practice

The practical question is not simply whether the payment is called a deposit or a loan. The key point is whether repayment depends on the tenant’s conduct. If it does, the legislation may treat the payment as part of the consideration for the lease transaction.

That can catch payments made as security, including a rent deposit or a deposit linked to service charge obligations, if the repayment terms are contingent in the required way.

The threshold test is also important. A smaller deposit or loan may be ignored entirely if it does not exceed twice the relevant maximum rent. But once the amount is above that limit, the full amount is treated as chargeable consideration other than rent. The manual does not describe a partial charge on only the excess.

The rent figure used for this test is not based on every possible future review outcome. In the example given by HMRC, rent review provisions are disregarded when identifying the relevant maximum rent for this purpose, and the starting annual rent was used.

Where the amount is treated as a notional premium, it is added to any actual premium. SDLT on premiums is then worked out on the combined total, using the relevant SDLT rates and thresholds for that type of property and transaction. That is separate from any SDLT charge on the rent element.

How to analyse it

A sensible way to approach the issue is:

• Identify the payment. Is it a deposit or a loan connected with the grant or assignment of a lease?
• Identify who receives it. It does not have to be paid to the landlord. Payment to a third party can still fall within the rule.
• Check the repayment terms. Is repayment contingent on the tenant doing something, or not doing something?
• Work out whether this is a grant or an assignment. The rent comparison period differs slightly.
• Calculate the relevant maximum rent. For a grant, look at the first five years of the term. For an assignment, look at the first five years of the remaining term.
• Compare the deposit or loan with twice that relevant maximum rent.
• If the amount exceeds that limit, treat the full amount as consideration other than rent.
• Add that notional premium to any actual premium and consider the SDLT treatment of that combined amount.
• Then consider the rent element separately, including any charge on the net present value of the rent.

Questions worth asking include:

• Is the payment genuinely just a refundable security arrangement, or does the legislation still deem it to be consideration?
• Are the repayment conditions linked to tenant performance or compliance?
• What is the highest annual rent in any continuous 12-month period within the relevant five-year window?
• If there is already a premium, does the additional notional premium push the transaction above an SDLT threshold?

Example

Illustration: a tenant takes a residential lease and pays a premium of £115,000 plus a deposit of £15,000. The annual rent is £1,000. Twice the relevant maximum rent is £2,000. Because the deposit exceeds that amount, the deposit is treated as a notional premium. The premium for SDLT purposes becomes £130,000 in total. Under the HMRC example, that moved the transaction above the residential 0% threshold that then applied, so SDLT became payable on the notional premium element. The rent was considered separately and, in the example, did not create a further charge.

Why this can be difficult in practice

The main difficulty is that commercial documents may describe a payment as a deposit or a loan, but SDLT looks at its legal effect rather than its label. A payment can still be treated as chargeable consideration even if everyone expects it to be repaid later.

Another difficulty is identifying when repayment is truly contingent on something being done or not done by the tenant. That depends on the drafting of the lease and any related deposit deed or loan arrangement.

The rent comparison can also be easy to misread. The test uses the relevant maximum rent in a defined period, and the HMRC example indicates that rent review provisions may be disregarded for this purpose. The source material here does not set out the full reasoning behind that approach, so care is needed if the rent structure is unusual.

Finally, this rule can affect both straightforward security deposits and arrangements that are, in substance, disguised premiums. The tax result may be the same even though the commercial explanation is different.

Key takeaways

• A tenant’s deposit or loan can be treated as SDLT chargeable consideration if repayment depends on the tenant’s actions or compliance.
• If the amount does not exceed twice the relevant maximum rent, it is ignored for this rule.
• If the rule applies, SDLT is charged on the full amount as a notional premium, without reduction for any later repayment.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding SDLT on Tenant Deposits and Loans in Lease Agreements

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