Stamp Duty Calculation for Lease with Variable Rent: Example Explained

SDLT on Lease Rent Where a Market Rent Review Falls Within the First Five Years

If a lease rent review affects rent in the first five years of the term, the SDLT on rent may need to be recalculated after the lease starts. The original return may use a reasonable estimate, but the tenant may then need to file further returns when the rent is agreed, or at the end of year 5 if it is still uncertain.

• SDLT on lease rent is based on the net present value of the rent, so uncertain or variable rent can change the tax calculation.
• Where rent within the first five years is not known, the original SDLT return should use the known rent plus a reasonable estimate for the uncertain part.
• In HMRC’s example, later years are calculated using the rent used for year 5, while ignoring a separate rent review that falls after the first five years.
• If the actual reviewed rent is agreed before the end of year 5, an extra return must be filed shortly afterwards using the actual figure.
• If the rent is still unresolved at the end of year 5, a further return is needed using a revised estimate, followed by another return when the final rent is settled.
• This means tenants must monitor rent review disputes carefully, because SDLT may need to be updated more than once during the lease.

Scroll down for the full analysis.

SDLT on lease rent: how to deal with a market rent review within the first five years

This page explains how SDLT is recalculated where lease rent is variable or uncertain because of a market rent review. The example deals with a lease granted for more than five years, where the first rent review falls within the first five years of the term. The key point is that SDLT on rent is not always fixed once the lease starts. If the rent for part of the first five years is uncertain, the tenant may need to file further returns as the position becomes clearer.

What this rule is about

SDLT on a lease is charged partly by reference to the net present value, or NPV, of the rent payable over the term. That calculation becomes more difficult where future rent is not known at the start, for example because the lease contains a market rent review.

The official example shows how HMRC says the rent should be treated where:

• the lease lasts 11 years,
• there are market rent reviews at years 4 and 8,
• the lease begins on 1 January 2018, and
• the first review affects rent within the first five years of the term.

The first five years matter because SDLT has special rules for uncertain or variable rent during that period. Broadly, an estimate may be needed at the outset, but the position must later be revisited.

What the official source says

In the example, the lease starts with rent of £100,000 a year. At the date of the original SDLT return, the tenant reasonably estimates that after the first market rent review the rent will rise to £125,000. In fact, when that review is finally settled, the actual rent becomes £150,000.

HMRC says the original return should include:

• the NPV of the known rent of £100,000 for years 1 to 4,
• the estimated rent of £125,000 for year 5, and
• for years 6 to 11, the highest rent payable in the first five years, which on those facts is £125,000.

HMRC also says no estimate is needed at that stage for the second market rent review at year 8, because that review falls outside the first five years of the term.

If the first review is concluded on 1 July 2022, an additional return is required by 31 July 2022. That return recalculates the NPV using:

• actual rent of £100,000 for years 1 to 4, and
• actual rent of £150,000 for years 5 to 11, still ignoring the year 8 review.

The example then deals with a delayed review. If the market rent is still disputed and is not finally agreed until 1 July 2023, HMRC says the uncertain rent must still be reconsidered at the end of the fifth year of the term.

On those facts:

• by 30 January 2023, a revised estimate of £145,000 is made and a further return is required using £100,000 for years 1 to 4 and £145,000 for years 5 to 11, again ignoring the year 8 review;
• by 31 July 2023, once the actual rent of £150,000 is known, another return is required using £100,000 for years 1 to 4 and £150,000 for years 5 to 11, still ignoring the later review.

What this means in practice

The practical message is that a tenant cannot simply wait until a disputed rent review is settled and do nothing in the meantime. If rent for the first five years is uncertain, SDLT may need to be recalculated more than once.

There are three stages in the example:

• At the start, use the known rent plus a reasonable estimate for the uncertain part within the first five years.
• If the actual figure becomes known before the end of the fifth year, file an additional return shortly afterwards.
• If the figure is still not known by the end of the fifth year, file a further return using a revised estimate at that point, and then file again when the actual figure is finally settled.

The example also shows an important carry-forward effect. Once there is uncertain rent within the first five years, the amount used for later years in the NPV calculation is not based on a fresh estimate of each later review. Instead, for this example, the rent for years after year 5 is taken as the amount actually or estimatedly payable at year 5, while ignoring the later review at year 8.

That can materially affect the SDLT payable, because the NPV calculation for the whole remaining term may increase once the rent review is settled at a higher level.

How to analyse it

If a lease contains a variable or uncertain rent clause, a sensible way to analyse the SDLT position is to ask these questions:

• When does the lease start, and when do the rent review dates fall?
• Is any part of the rent within the first five years uncertain at the effective date of the transaction?
• What rent is actually known at the outset?
• What is the reasonable estimate for the uncertain rent within the first five years?
• What figure should be used for years after year 5 under the uncertain rent rules?
• Has the uncertain amount become known before the end of year 5?
• If not, has the fifth year ended so that a revised estimate return is now required?
• When the actual rent is finally agreed, has a further return become necessary?

It is also important to separate reviews inside the first five years from those outside that period. In this example, the review at year 8 is ignored in the recalculations described by HMRC. That is because the example is focused on the uncertain rent rules applying to the first five years.

Example

Illustration based on the official example:

A tenant takes an 11-year lease beginning on 1 January 2018. The rent is £100,000 a year at first. There is a market rent review at year 4 and another at year 8.

When the original SDLT return is filed, the tenant reasonably estimates that the year 4 review will increase the rent to £125,000. The NPV is therefore calculated using:

• £100,000 for years 1 to 4,
• £125,000 for year 5, and
• £125,000 for years 6 to 11.

If the year 4 review is later settled at £150,000 on 1 July 2022, the tenant must file an additional return by 31 July 2022 using:

• £100,000 for years 1 to 4, and
• £150,000 for years 5 to 11.

If instead the review is still unresolved at the end of the fifth year, the tenant must not wait indefinitely. A revised estimate must be used at that point. If that revised estimate is £145,000, a return is required by 30 January 2023 using £145,000 for years 5 to 11. Then, when the dispute is finally settled at £150,000 on 1 July 2023, another return is required by 31 July 2023.

Why this can be difficult in practice

The main difficulty is that rent review disputes often run past the end of the fifth year. That creates a moving target for SDLT. A tenant may need to make a reasonable estimate at the start, revise that estimate later, and then replace it with the actual figure once known.

Another practical difficulty is identifying what exactly counts as the relevant figure for later years in the NPV calculation. The example applies the rent used for year 5 across years 6 to 11 and ignores the later review at year 8. That is clear on these facts, but readers should be careful not to assume that every lease with changing rent works in exactly the same way. The result depends on the statutory treatment of uncertain rent and the timing of the review clauses.

There is also an administrative point. The example refers to additional returns being made by letter to Stamp Taxes. The underlying filing mechanism may change over time, but the legal point remains that further notification is required when the rent position changes or must be revisited under the rules.

Key takeaways

• If lease rent within the first five years is uncertain, the original SDLT return may need to use a reasonable estimate rather than a final figure.
• The SDLT position must be revisited when the actual rent becomes known, and also at the end of the fifth year if uncertainty remains.
• A later rent review outside the first five years may be ignored for the purpose of this particular uncertain rent calculation, as shown in HMRC’s example.

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 Explained

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