Stamp duty on lease rent: an NPV calculation example
In brief
HMRC’s example shows why the SDLT rental figure for a lease may be lower than the total rent due under it.
- NPV discounts rent paid in later years.
- The example’s £80,000 rent total becomes an NPV of £57,192.25.
- For years after year 5, the example uses the highest annual rent from the first five years.
Scroll down for the full analysis.
Read the original guidance here:
Stamp duty on lease rent: an NPV calculation example
Stamp duty land tax on a lease does not simply add up every rent payment. Instead, it uses net present value, or NPV. By giving later rent payments a lower value in the calculation, this approach can produce a very different total from the rent actually payable. The difference can be substantial.
What this rule is about
When you take a lease, SDLT can apply to the rent as well as to any upfront premium. For the rent part, the law uses an NPV figure. That figure reflects both the rent due and when it is due.
Later payments count for less.
This matters most where rent rises during a long lease. The rent written in the lease may keep increasing, but the SDLT calculation may use an assumed figure after year five where the rent varies.
What the official source says
HMRC’s manual gives a ten-year example. The rent due under the lease starts at £4,000 in year 1 and rises each year, reaching £11,000 in year 10. The total rent actually due over the ten years is £80,000.
That is not the NPV total. HMRC calculates an NPV of £57,192.25, rounded in the manual to £57,192.
- For year 1, HMRC divides £4,000 by 1.035, giving £3,864.73.
- For year 2, it divides £5,000 by 1.035 twice, giving £4,667.55.
- The calculation continues for each later year, using another 1.035 multiplier each time.
- The 3.5% figure is the statutory temporal discount rate.
- For years 6 to 10, HMRC uses £8,000 each year in the NPV calculation.
- £8,000 is the highest rent for any consecutive 12-month period in the first five years.
Why does the calculation stop following the rising rent after year 5? The law sets an assumption for rent after that point where lease rent varies. It uses the highest annual rent from any consecutive 12-month period in the first five years.
Although the lease says £9,000 is due in year 6, the calculation uses £8,000 because year 6 falls after the first five years.
What this means in practice
Adding ten rents together does not produce the SDLT rental figure. In this example, that approach would give £80,000. The figure used to work out SDLT on the rent is instead the discounted NPV total.
The rent still exists. Only its SDLT calculation changes.
- Read the rent schedule for every year of the lease.
- Separate the rent actually due from the figure used for SDLT.
- Find the highest rent in any consecutive 12-month period within the first five years.
- Use that amount as the assumed annual rent after year 5 where this variable-rent rule applies.
- Discount each year’s figure using the 3.5% rate.
- Add the discounted figures to get the NPV.
The NPV is then the rental value used when calculating SDLT on the lease rent. This page cannot state the tax due because the relevant SDLT rate bands, together with the particular facts of the lease, are needed to determine it. Those details matter.
How to analyse it
Begin with the lease document rather than a rough estimate of the annual rent, because timing details and a rent review clause can alter the figure used in the calculation. Work through the calculation in order.
- Check that the transaction is the grant of a lease and identify its term.
- List the rent due for each year.
- Check whether the rent varies under the lease.
- Identify the highest rent for a consecutive 12-month period in years 1 to 5.
- For later years, consider whether the statutory assumed-rent rule replaces the stated rent.
- Divide each year’s rent figure by 1.035 raised to the number of that year.
- Add the resulting figures, without rounding each one too early.
- Then apply the SDLT rules and rate bands that apply to the lease.
Timing matters here. A payment in year 10 is discounted ten times, so it contributes less to NPV than the same payment in year 1.
Example
Take HMRC’s ten-year example. The first five years use the rent stated in the lease: £4,000, £5,000, £6,000, £7,000 and £8,000. Their discounted values total £26,779.83.
For years 6 to 10, the lease rent rises from £9,000 to £11,000. Yet the NPV calculation uses £8,000 for each of those years. Discounting those five assumed payments produces a further £30,412.42.
Add both parts together: £26,779.83 plus £30,412.42 equals £57,192.25. In the manual example, this is the NPV figure, not the £80,000 total rent due under the lease.
Why this can be difficult in practice
The easy mistake is to treat NPV as a total of the rent you will pay. It is not. It is a tax calculation that discounts future payments and, in this type of variable-rent case, uses an assumed figure after year 5.
- A rent review clause may mean the rent varies even where later figures are not yet known.
- For the first five years, use the highest rent in any consecutive 12-month period rather than simply a calendar-year total.
- Rent that is uncertain or contingent can need further analysis.
- Linked leases can change how SDLT on rent is worked out.
- An upfront premium is separate from the rent calculation.
- HMRC’s example explains its view, but the statutory wording remains the legal test.
If you only remember one thing, make it this: the rent you pay under the lease and the rent figure used for SDLT can be different.
Key takeaways
- SDLT on lease rent uses NPV, not a simple rent total.
- Future rent payments are discounted at 3.5%.
- For variable rent after year 5, the first five years can set the assumed rent figure.
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 5 para 2 — tax on lease rent uses rental value
- FA 2003 Schedule 5 para 3 — how to calculate rent net present value
- FA 2003 Schedule 5 para 8 — the 3.5% temporal discount rate
- FA 2003 Schedule 17A para 7 — rent assumptions where lease rent varies
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
- This page does not calculate any SDLT due. The amount of tax depends on the applicable rate bands and the facts of the lease.
- Different rules may matter where rent is uncertain, linked leases are involved, or the lease terms differ from this example.
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 signed lease and its full rent schedule
- the lease start date and length of term
- details of any rent review, index link or contingent rent
- details of any linked lease transactions
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 Stamp duty on lease rent: an NPV calculation example [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 5 para 2 - tax on lease rent uses rental value https://www.legislation.gov.uk/ukpga/2003/14/schedule/5/paragraph/2/2025-11-17 - FA 2003 Schedule 5 para 3 - how to calculate rent net present value https://www.legislation.gov.uk/ukpga/2003/14/schedule/5/paragraph/3/2025-11-17 - FA 2003 Schedule 5 para 8 - the 3.5% temporal discount rate https://www.legislation.gov.uk/ukpga/2003/14/schedule/5/paragraph/8/2025-11-17 - FA 2003 Schedule 17A para 7 - rent assumptions where lease rent varies https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/7/2025-11-17 Guidance page from HMRC on this topic (guidance, not law): https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm13080 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 - This page does not calculate any SDLT due. The amount of tax depends on the applicable rate bands and the facts of the lease. - Different rules may matter where rent is uncertain, linked leases are involved, or the lease terms differ from this example. 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 31 August 2026
Useful article? You may find it helpful to read the original guidance here: Stamp duty on lease rent: an NPV calculation example
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