Stamp Duty Calculation for Lease with Variable Rent: Example and Requirements

SDLT on lease rent where a market rent review is still uncertain

When a lease includes a market rent review and the future rent is not yet known, SDLT on the rent is worked out using the lease’s net present value based on the best estimate available at the start. The position may then need to be updated when the actual rent is agreed, and there is also a compulsory review at the end of the fifth year if the rent is still uncertain.

• The first SDLT return is filed when the lease is granted, using known rent for the fixed period and a reasonable estimate for the uncertain period.
• If the reviewed rent is agreed within the first five years, the NPV must be recalculated using the actual figures and a further return may be needed.
• If the rent review is still unresolved at the end of year five, the estimate must be reconsidered then and revised if necessary, even if the dispute is ongoing.
• In the example, a seven-year lease started at £100,000 a year, with an estimated reviewed rent of £125,000, later revised to £145,000 at year five, and finally agreed at £150,000.
• Missing an update point can lead to underpaid SDLT and possible penalties, so the issue is about timing as well as calculation.

Scroll down for the full analysis.

SDLT on lease rent: how to deal with a market rent review when the rent is still uncertain

This page explains how SDLT works where a lease contains a rent review and the future rent is not yet known when the lease is granted. The official example shows what returns may be needed, when they are due, and how the net present value of the rent must be recalculated if the estimate changes or the actual rent is later agreed.

What this rule is about

For SDLT on leases, tax on rent is based on the net present value, usually called the NPV, of the rent payable over the term. That calculation is straightforward where the rent is fixed from the start. It is more difficult where part of the rent is uncertain, for example because the lease contains a market rent review.

In that situation, the rent for later years may have to be estimated at first. SDLT does not wait indefinitely for the uncertainty to be resolved. The position may need to be revisited when the actual rent becomes known, and there is also a statutory reconsideration point at the end of the fifth year of the lease.

What the official source says

The source example deals with a seven-year lease granted on 1 January 2018. The rent is:

• £100,000 a year initially
• subject to a market rent review after four years
• first estimated to rise to £125,000 for years five to seven
• later found in fact to be £150,000

The official treatment is as follows.

First, an SDLT return is required when the lease is granted. That return uses:

• the known rent of £100,000 for years one to four, and
• the estimated rent of £125,000 for years five to seven

If the rent review is concluded on 1 July 2022, which is within the statutory five-year period, a further return is required by 31 July 2022. That return recalculates the NPV using:

• £100,000 for years one to four, and
• the actual known rent of £150,000 for years five to seven

The source then considers a different outcome. If the market rent review is still unresolved at the end of the five-year period and is not concluded until 1 July 2023, the rent cannot simply be left on the original estimate. Instead:

• the estimate must be reconsidered at the end of the fifth year of the lease
• if necessary, the estimate must be revised
• in the example, the revised estimate is £145,000

Because that revised estimate is higher than the figure originally returned, an additional return is required by 30 January 2023. That return uses:

• £100,000 for years one to four, and
• the revised estimate of £145,000 for years five to seven

The source also says that once the actual rent for all of the first five years is known, the return should be revised to actual figures and any additional tax paid so that penalties do not accrue.

What this means in practice

The key practical point is that an uncertain rent review does not remove the need to file and, if necessary, update SDLT returns.

When the lease starts, you file using the best figures available at that time. If later events show that the estimate was too low or too high, the SDLT position may need to be recalculated.

The five-year point matters because it acts as a forced review date. Even if the market rent dispute is still ongoing, the taxpayer must revisit the estimate then and submit an updated return if the revised estimate changes the tax position.

In the example, there are potentially three stages:

• the original filing at grant, based partly on estimated rent
• a revised filing when the actual reviewed rent becomes known, if this happens within five years
• if the uncertainty continues beyond five years, a mandatory reconsideration at the five-year point, followed later by a further revision when actual figures are known

The source also indicates that these later returns are made by letter to Stamp Taxes rather than by treating the matter as closed once the original return has been filed.

How to analyse it

If a lease includes a variable or uncertain rent, a sensible way to approach the SDLT position is to ask the following questions.

• What rent is fixed and known from the outset?
• What part of the rent is uncertain, and why?
• What estimate was used in the original SDLT return?
• Has the uncertainty now been resolved within the first five years of the lease?
• If not, what estimate is reasonable at the end of the fifth year?
• Does the revised figure increase the NPV and therefore the SDLT due?
• Once actual figures are known, does the return need to be revised again?

This is not only a calculation exercise. It is also a timing exercise. Missing the point at which the estimate must be revisited can lead to underpaid tax and possible penalties.

Example

A tenant takes a seven-year lease starting on 1 January 2018. The rent is £100,000 for the first four years. After that, the lease says the rent will be reviewed to market level. At the start, the parties estimate that the reviewed rent will be £125,000, so the SDLT return filed in January 2018 uses that estimate for years five to seven.

If the review is settled on 1 July 2022 at £150,000, the tenant must file a further return by 31 July 2022 using the actual £150,000 figure for years five to seven.

If instead the review is still being disputed when the fifth year ends, the tenant cannot wait until the dispute is finally resolved. The estimate must be reconsidered at that five-year point. If a revised estimate of £145,000 is then appropriate, a further return is required by 30 January 2023 on that basis. When the actual reviewed rent is eventually settled, the return should be revised again to reflect the actual figures.

Why this can be difficult in practice

The difficult part is usually not the arithmetic but deciding what estimate should be used while the rent remains uncertain. The source example gives revised figures, but it does not set out a detailed method for arriving at them. In real cases, that may involve valuation evidence, ongoing negotiations, or an unresolved dispute.

Another practical difficulty is that there can be more than one update point. A taxpayer may assume that nothing further needs to be done until the reviewed rent is finally agreed. The source makes clear that this is not always correct. The five-year reconsideration can require action even where the underlying dispute is still unresolved.

There is also a distinction between:

• an estimate used because future rent is not yet known, and
• actual rent figures once they become known

That distinction matters because SDLT on lease rent is intended to be brought into line with reality over time, but only through the filing steps required by the rules.

Key takeaways

• If lease rent is uncertain, the original SDLT return uses known rent plus a reasonable estimate of the unknown rent.
• If the actual rent becomes known within five years, the NPV must be recalculated and a further return may be required.
• If the rent is still uncertain at the end of year five, the estimate must still be reconsidered then and revised if necessary.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Stamp Duty Calculation for Lease with Variable Rent: Example and Requirements

View all HMRC SDLT Guidance Pages Here