Indefinite Term Leases: SDLT Treatment and Notification Requirements Explained

SDLT on indefinite term leases that continue year by year

For SDLT, an indefinite term lease is first treated as a one-year lease, but if it keeps running its notional term increases one year at a time from the original grant date. This can increase the rent’s net present value, which may mean filing a revised return or making a first notification, even if no new lease has been signed.

• At the start, SDLT is worked out using a notional one-year term for the lease.
• If the lease continues beyond each notional anniversary, it is re-treated as a two-year, three-year, four-year lease and so on from the original grant date.
• If SDLT was already due, the higher notional term may increase the tax and require a revised return.
• If no SDLT was due at first, the longer notional term may bring the lease into charge and require notification, generally within 30 days after the relevant notional year ends.
• The rolling yearly approach stops if the lease ends or a new lease is granted.
• The lease does not become notifiable just because its notional term later reaches seven years or more; that rule looks at the term when the lease was granted.

Scroll down for the full analysis.

SDLT on indefinite term leases that keep running

This page explains how SDLT applies where a lease is granted for an indefinite term and simply continues beyond its initial notional period. The key point is that SDLT does not treat the lease term as fixed once and for all. Instead, the notional term increases year by year if the lease carries on, and that can trigger a revised return or a first notification later on.

What this rule is about

Some leases do not have a conventional fixed term. For SDLT purposes, these indefinite term leases are given a notional term so that the tax can be worked out. The official material deals with what happens if the lease does not end after that initial notional period.

The issue matters because SDLT on rents is based on the net present value of the rent over the lease term. If the notional term becomes longer, the total NPV of the rents increases. That can change the SDLT position even though the legal lease itself has not been replaced.

What the official source says

HMRC says that if an indefinite term lease continues beyond its initial notional term of one year, it is then treated for SDLT purposes as a lease for two years from the date of grant or deemed grant. This treatment comes from Schedule 17A paragraph 4 to Finance Act 2003.

If SDLT was already chargeable on the initial 12-month lease, the increase in the notional term increases the total NPV of the rent, so a revised return is required.

If no SDLT was chargeable at the start, the longer notional term may bring the lease into charge. In that case, HMRC says the transaction should be notified using form SDLT1 and, where relevant, forms SDLT2, SDLT3 and SDLT4. The notification should be made by letter to Stamp Taxes within 30 days beginning with the day after the notional first 12-month term expires.

If the lease continues beyond the notional two-year term, it is treated as a notional three-year lease from the original date of grant or deemed grant. The same approach then repeats: if it continues beyond three years, it becomes notionally four years, and so on, until the lease ends or a new lease is granted.

The source also makes an important point about notification. An indefinite term lease does not become notifiable just because its notional term eventually reaches seven years or more. The seven-year notification rule is concerned with whether, when granted, the lease was for seven years or more and was for chargeable consideration. On HMRC’s view, the later extension of the notional term does not by itself bring the lease within that particular notification rule.

What this means in practice

You need to treat an indefinite term lease as something that may need to be revisited each year if it is still running.

In practical terms:

• At the outset, SDLT is calculated by reference to a notional one-year term.
• If the lease is still in place after that year, you recalculate on the basis of a two-year term from the original grant date.
• If it is still in place after two years, you recalculate again on the basis of a three-year term from the original grant date.
• This continues year by year until the lease ends or a new lease is granted.

The practical consequence is that even if nothing new is signed, the SDLT position may change over time. A lease that was below the SDLT charge at first may later become chargeable because the longer notional term pushes the NPV of the rent high enough. Equally, where SDLT was already due, the amount may need to be revised.

How to analyse it

A sensible way to approach this is to ask the following questions:

• Is the lease an indefinite term lease for SDLT purposes, rather than an ordinary fixed-term lease?
• What was the date of grant or deemed grant? The notional term is measured from that date.
• What was the SDLT position on the initial notional one-year term?
• Has the lease continued beyond the end of the first notional year, or beyond later notional anniversaries?
• If so, what is the lease’s current notional term: two years, three years, four years, and so on?
• Does the increased notional term change the NPV of the rent enough to require more SDLT or to bring the lease into charge for the first time?
• If there is a filing consequence, is it a revised return or a first notification?
• Has the lease actually been determined, or has a new lease been granted? If either has happened, the rolling notional extension stops being the right analysis.

The timing point is also important. Where no SDLT was initially chargeable but the extension of the notional term brings the lease into charge, HMRC says notification should be made within 30 days beginning with the day after the end of the first notional 12-month term. The same logic applies on later anniversaries if the lease continues and the SDLT position changes.

Example

Illustration: a tenant is granted a lease for an indefinite term. At the start, SDLT is considered on the basis that the lease is treated as lasting one year from the grant date. On that basis, no SDLT is payable.

The lease is still continuing after the end of that first year. For SDLT purposes, it is now treated as a lease for two years from the original grant date. The rent over that longer notional term produces a higher NPV. If that brings the lease into charge, a notification must be made in the way HMRC describes.

If the lease is still continuing after the second year, it is then treated as a three-year lease from the original grant date, and the SDLT position must be reconsidered again.

Why this can be difficult in practice

The main difficulty is that the SDLT analysis changes even though the legal arrangements may appear unchanged. Parties may assume that if no new lease is signed, there is nothing further to do. That is not how this rule works.

Another practical difficulty is identifying whether the lease has simply continued, has been determined, or has been replaced by a new lease. The official source says the year-by-year notional extension continues only until the lease is determined or a new lease is granted. In real transactions, that distinction may depend on the facts and the documentation.

There is also room for misunderstanding around the seven-year notification point. HMRC’s manual makes clear that an indefinite term lease is not brought into notification merely because its notional term later reaches seven years or more. That is a narrow point about the notification rule based on the term at grant. It does not mean the lease can be ignored for SDLT purposes if the rent-based charge changes as the notional term extends.

Key takeaways

• An indefinite term lease is revisited for SDLT year by year if it continues, with its notional term increasing from one year to two, then three, and so on.
• A longer notional term increases the rent NPV, which may require a revised return or may bring the lease into charge for the first time.
• The fact that the notional term eventually reaches seven years does not, by itself, make the lease notifiable under the rule that applies to leases granted for seven years or more.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Indefinite Term Leases: SDLT Treatment and Notification Requirements Explained

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