Calculating Stamp Duty on Variable Rent: Example with Revised Estimates and NPV Adjustments

SDLT on turnover rent leases: calculating and updating the NPV

Where lease rent is uncertain, such as rent based on turnover, SDLT is worked out using special NPV rules. For the initial return, you use estimated rent for the first five years, then use the highest figure from those five years for all later years. You must review the calculation at the end of year 5, using actual figures where known and updated estimates where not, and revise the SDLT position again if later figures increase the NPV.

• Uncertain or variable rent, including turnover rent, is not treated in the same way as fixed rent for SDLT lease calculations.
• At the start of the lease, the NPV is based on the estimated rent for years 1 to 5 only; for later years, you use the highest rent in any 12-month period within those first five years.
• You do not use later business forecasts for years after year 5 if the rent is uncertain.
• At the end of the fifth year, you must review the return even if some of the first five years’ rent is still not finally known.
• If the revised NPV is higher than the figure originally returned, a further notification or return is needed and any extra SDLT should be dealt with promptly.
• When the actual rent for the first five years is finally known, the NPV may need to be recalculated again, so turnover leases should be diarised for later SDLT checks.

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SDLT on leases with turnover rent: how to calculate and update the NPV when rent is uncertain

This page explains how Stamp Duty Land Tax is worked out for a lease where the rent is uncertain because it depends on turnover. The official example shows two important points: how to calculate the net present value, or NPV, when the lease starts, and when you must revisit that calculation later as actual figures become known.

What this rule is about

SDLT on a lease is charged partly by reference to the NPV of the rent over the term. That is straightforward where the rent is fixed. It is more difficult where the rent is variable or uncertain, for example where it is calculated as a percentage of business turnover.

The rule addressed here deals with that uncertainty. At the start of the lease, you may not know the actual rent that will be paid. The legislation therefore requires the NPV calculation to be based on estimates for the first five years, and then a special approach for later years. The figures must then be reviewed later, even if some rent is still not finally known.

What the official source says

The source example concerns a lease granted on 1 April 2018 for seven years. The annual rent is 10% of turnover, so it is variable and uncertain.

At the outset, the business plan gives these estimated rents:

• Year 1: £22,500
• Year 2: £22,500
• Year 3: £23,000
• Year 4: £25,000
• Year 5: £27,000
• Year 6: £30,000
• Year 7: £31,000

Because the rent is variable, the NPV is not calculated using all seven estimated figures. Instead, the calculation uses:

• the estimated rent for each of the first five years, and
• for years after year 5, the highest rent paid in any 12-month period during the first five years.

In the example, the highest estimated rent in the first five years is £27,000, so years 6 and 7 are both taken as £27,000 for NPV purposes. The figures used for the SDLT return are therefore:

• Year 1: £22,500
• Year 2: £22,500
• Year 3: £23,000
• Year 4: £25,000
• Year 5: £27,000
• Year 6: £27,000
• Year 7: £27,000

On that basis, the return shows an NPV of £151,193.

The source then says the estimated uncertain rent must be reviewed at the end of the fifth year of the lease, even if the rent is still not fully known at that point. If all of the rent for the first five years has not yet been finally determined, actual figures should be used where known, and estimates reconsidered where not yet known. The highest actual or estimated figure from the first five years is then used for the later years.

By 31 March 2023, in the example, years 1 to 4 are known from accounts, but year 5 is still estimated. The revised figures are:

• Year 1 actual: £23,035
• Year 2 actual: £21,252
• Year 3 actual: £24,077
• Year 4 actual: £27,045
• Year 5 estimate: £25,000
• Year 6 highest: £27,045
• Year 7 highest: £27,045

This produces a revised NPV of £151,686. Because that is higher than the figure already returned, an additional return is required by 30 April 2023, sent by letter to HMRC Stamp Taxes.

When the actual year 5 rent later becomes known, the return must be revised again. In the example, year 5 actual rent becomes known on 1 September 2023 as £28,673. That means the NPV must be recalculated using the actual first five years, with years 6 and 7 then based on the highest figure from those five years, now £28,673. The resulting actual NPV is £157,383, and the source says this revised figure should be notified by letter by 1 October 2023 to prevent penalties accruing.

What this means in practice

The practical point is that a lease with uncertain rent can trigger more than one SDLT filing event.

At the start, you do not wait until the rent becomes certain. You file using the best estimates required by the SDLT rules.

But that is not the end of the matter. At the end of year 5, you must revisit the figures. This review is required even if some of the first five years’ rent is still not fully known. You use actual figures where available, updated estimates where not, and then set the rent for later years by reference to the highest figure in the first five years.

If that review shows that the NPV is higher than the one originally returned, a further return is needed. If later information shows the first five years’ rent was even higher, the return must be revised again using the actual figures.

So, for conveyancers, tenants and advisers, the SDLT compliance work does not necessarily end after the effective date of the lease. Turnover leases and other uncertain-rent leases need a diary note for the fifth anniversary and, where necessary, a further update when the final figures for the first five years are known.

How to analyse it

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

• Identify whether the rent is uncertain or variable. A turnover rent usually is.
• For the initial SDLT return, use estimated rent for each of the first five years only.
• For any year after year 5, do not simply use later forecasts. Instead, use the highest rent in any 12-month period within the first five years, based on the figures available at that stage.
• Calculate the NPV on that basis and file the return.
• At the end of the fifth year, review the position whether or not all figures are final.
• Replace estimates with actual figures where known. Reconsider any remaining estimates.
• Identify the highest actual or estimated rent in the first five years and use that for the later years.
• If the revised NPV is higher than the one already returned, make the further notification within the required time.
• When all rent for the first five years is finally known, revise again using the actual figures.

The source material also shows an important compliance point: if actual figures become known later and increase the NPV, HMRC expects the return to be revised promptly so that additional tax is paid before penalties begin to build up.

Example

Illustration based on the official example:

A tenant takes a seven-year lease with rent equal to 10% of shop turnover. The tenant expects rent to rise over time, but because the rent is uncertain, the SDLT calculation cannot simply use all seven projected amounts.

Instead, the tenant uses the estimated rents for years 1 to 5. If the highest of those is £27,000, then years 6 and 7 are both treated as £27,000 for NPV purposes, even if the business plan predicted higher turnover later.

Five years later, the accounts show that one of the earlier years was actually higher than expected, at £27,045. That figure now becomes the amount used for years 6 and 7 in the revised calculation. If year 5 later turns out to be £28,673, that higher figure must then be used instead, and the NPV increases again.

The result is that SDLT is recalculated in stages as uncertainty falls away.

Why this can be difficult in practice

The main difficulty is timing. In many turnover leases, the rent for a lease year may not be finalised by the fifth anniversary because accounts are still being prepared, turnover is being agreed, or there is a reconciliation mechanism in the lease. The source makes clear that this does not remove the obligation to review the return at the end of year 5. You must work with actual figures where available and updated estimates for the rest.

Another practical difficulty is that later-year rent is not based on what you now expect for those later years. Instead, it is capped to the highest figure from the first five years. That can be counterintuitive, especially where the business plan predicts substantial growth after year 5.

There is also an administrative point. The source example refers to notifying HMRC Stamp Taxes by letter. Readers should be careful to distinguish between the substantive rule, which is about revising the NPV when figures change, and the procedural method mentioned in the manual example, which reflects HMRC’s practice described there.

Key takeaways

• For uncertain rent, the initial SDLT NPV uses estimated rent for the first five years, then the highest first-five-year figure for later years.
• You must review the figures at the end of year 5 even if some rent is still not finally known.
• If later actual figures increase the NPV, the return should be revised and any extra tax paid promptly.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Calculating Stamp Duty on Variable Rent: Example with Revised Estimates and NPV Adjustments

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