Example 5: Calculating Stamp Duty on Lease with Variable Rent Increases

SDLT on lease rent where annual rent increases are fixed in advance

For SDLT on lease rent, tax is charged on the net present value of the rent over the lease term. Where a lease says from the start that rent will rise by a fixed amount or percentage each year, HMRC treats this as variable rent. In this type of case, you use the actual known rent for the first five years, then for later years you use the highest annual rent payable in any 12-month period within those first five years.

• In HMRC’s example, a seven-year lease starts at £100,000 a year and increases by 4% annually.
• The actual rent figures for years 1 to 5 are used in the SDLT NPV calculation because they are fixed and known from the outset.
• For years 6 and 7, the figure used is £116,986, being the highest rent in any 12-month period during the first five years.
• This means the SDLT calculation may not follow the full pattern of contractual rent increases after year 5.
• No later review of the SDLT calculation is needed in this example because the first five years’ rents are known facts, not estimates or contingent amounts.

Scroll down for the full analysis.

SDLT on lease rent: how to calculate NPV where rent increases each year

This page explains how Stamp Duty Land Tax works for a lease where the rent rises by a fixed, known amount each year. The point matters because SDLT on lease rent is based on the net present value, or NPV, of the rent payable over the term. Where rent is variable, the calculation does not always use the whole lease term in the same way.

What this rule is about

For SDLT, rent under a lease is taxed by reference to its NPV. Special rules apply where the rent is uncertain or variable. The official example here deals with a common situation: the lease says from the outset that the annual rent will increase by a fixed percentage each year.

The key issue is how much of that future rent can be taken into account at the start, and what figure should be used for later years of the lease.

What the official source says

The source example concerns a seven-year lease granted on 1 April 2018. The initial rent is £100,000 a year, increasing by 4% each year.

HMRC treats this as variable rent. For the SDLT NPV calculation:

• the actual known rent figures for the first five years are used, because those increases are already fixed by the lease and known at the outset
• for years 6 and 7, the rent used is the highest rent payable in any twelve-month period during the first five years

On the figures in the example, that produces these annual amounts for the NPV calculation:

• Year 1: £100,000
• Year 2: £104,000
• Year 3: £108,160
• Year 4: £112,486
• Year 5: £116,986
• Year 6: £116,986
• Year 7: £116,986

The source also states that no later review of the calculation is required. That is because the rent increases for the first five years are known from the start. They are not estimates and do not depend on a contingency.

What this means in practice

The practical effect is that a lease with fixed annual uplifts is not treated in the same way as a lease where the future rent depends on something uncertain, such as turnover, market rent review, or a future event.

Here, the lease already tells you exactly what the rent will be in each of the first five years. So those figures go straight into the original SDLT return.

But the calculation does not continue using the actual scheduled increases beyond year 5 for this purpose. Instead, for years after the first five, the figure used is the highest rent paid in any twelve-month period within those first five years.

In this example, the highest twelve-month figure in the first five years is the year 5 rent, so that same amount is carried forward into years 6 and 7.

This can matter because the SDLT charge on rent may be lower or higher than a reader might expect if they assume every later contractual increase is included in full. The example shows that the statutory method for variable rent can cap the figure used after year 5 by reference to the highest rent in the first five years.

How to analyse it

If you are checking SDLT on lease rent in this type of case, the basic approach is:

• Identify whether the lease rent is fixed throughout or variable.
• If it is variable, ask whether the increases for the first five years are already known from the lease terms.
• Work out the actual annual rent payable in each of the first five years.
• Find the highest rent payable in any twelve-month period within those first five years.
• Use that highest figure for each later year of the term when calculating NPV, unless some different statutory rule applies.
• Consider whether any later review of the SDLT position is needed. In a case like this example, HMRC says no review is needed because the first five years use known figures rather than estimates or contingent amounts.

The important distinction is between rent that is known under the lease from the start and rent that is only estimated because it depends on future facts. That distinction affects whether the original return may later need to be revisited.

Example

Suppose a seven-year lease starts with rent of £100,000 a year, rising by 4% each year under the lease terms.

The annual rents for the first five years are known immediately:

• Year 1: £100,000
• Year 2: £104,000
• Year 3: £108,160
• Year 4: £112,486
• Year 5: £116,986

The highest rent in any twelve-month period in those first five years is £116,986. So for SDLT NPV purposes, years 6 and 7 are both treated as £116,986 as well, even though the lease might otherwise provide for further increases.

On HMRC’s example, that original calculation stands and does not need to be reviewed later.

Why this can be difficult in practice

The main difficulty is classification. A lease may contain rent changes that are fixed, formula-based, contingent, or partly uncertain. The SDLT treatment depends on which category the rent falls into.

Another point that can cause confusion is the difference between the actual contractual rent under the lease and the figure used for the SDLT NPV calculation. They are not always the same thing for every year of the term.

It is also easy to assume that any variable rent means a later recalculation will be needed. This example shows that that is not always right. If the first five years are based on rent figures that are already known and not contingent, HMRC’s position is that no review is required.

Care is needed where the lease includes more complicated review machinery, mixed rent provisions, or changes that depend on future events. This example is specifically about fixed annual increases that are known from the outset.

Key takeaways

• Fixed annual rent uplifts can still count as variable rent for SDLT lease calculations.
• For NPV purposes, use the actual known rent for the first five years, then the highest rent from those first five years for later years in this type of case.
• If the first five years’ increases are known from the start and not contingent, HMRC says the original calculation does not need later review.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example 5: Calculating Stamp Duty on Lease with Variable Rent Increases

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