Example of Tax Treatment for Continuing Indefinite Term Leases

SDLT and continuing periodic tenancies

An oral monthly periodic tenancy can later be treated for SDLT purposes as if it had a longer term, including a 7-year lease, if the tenant stays in occupation. However, HMRC’s example says this later deemed extension does not change whether an SDLT return was needed when the tenancy was first granted, because notifiability is judged by the original term at grant.

• An oral monthly periodic tenancy starting on 1 March 2005 at £600 a month was initially treated for SDLT as a one-year lease.
• Its effective date was the date of grant, and no SDLT return was required at that point because the lease was under 7 years and did not meet the tax threshold in the example.
• When the tenant remained in occupation, the tenancy was later treated as extending over time for SDLT valuation purposes.
• By 1 March 2011, HMRC treated the tenancy as if it were a 7-year lease running from 1 March 2005, with a higher NPV of rent.
• Even then, HMRC’s view was that no notification was required, because the filing test looks at the lease term when originally granted, not at a later notional extension.
• This shows the need to keep separate the issues of SDLT valuation, chargeability and whether the original transaction was notifiable.

Scroll down for the full analysis.

SDLT and continuing periodic tenancies: when an oral monthly tenancy later counts as a 7-year lease

This page explains a narrow but important SDLT point about continuing indefinite term leases, such as an oral monthly periodic tenancy. The rule can look odd: a tenancy that starts out being treated as a short lease can later be treated as having a much longer notional term. The practical question is whether that later extension changes the filing position. On the source material, it does not.

What this rule is about

For SDLT, some leases that continue indefinitely are not analysed only by what the parties expected at the start. Instead, the tax treatment can change as time passes and the tenant remains in occupation.

The example in the official material deals with an oral monthly periodic tenancy. At the start, it is treated as a lease for one year. If the tenant stays on, the tenancy is then treated as extending. By 1 March 2011, the tenancy in the example is treated as if it were a 7-year lease running from 1 March 2005.

The main issue is this: if the lease is later treated as having a 7-year term, does that mean an SDLT return must then be filed because leases of 7 years or more are often notifiable? HMRC’s example says no, because notifiability is tested by reference to the term when the lease was originally granted.

What the official source says

The source example says:

• An oral monthly periodic tenancy began on 1 March 2005 at rent of £600 per month.
• At the outset, it was treated as a lease for one year.
• The net present value, or NPV, of the rent was £6,956.
• The effective date was the date of grant, 1 March 2005.
• No notification was required because the lease was for less than 7 years and the tax was not chargeable at 1% or more on the consideration.
• The tenant stayed in occupation after 28 February 2006, and the tenancy continued past 1 March 2011 at the same rent.
• On 1 March 2011, the lease was treated as being for a term of 7 years from 1 March 2005.
• Its NPV was then £44,024, which was still below the threshold referred to in the example.
• Even though the notional lease was now treated as a 7-year lease granted for chargeable consideration, it still did not need to be notified.

The reason given is important. HMRC says that whether a lease needs to be notified depends on the term of the lease when it was granted, not on a later notional extension of term.

What this means in practice

The example shows that two separate SDLT ideas need to be kept apart:

• how the lease is valued over time for SDLT purposes, including a later deemed extension of term
• whether the transaction had to be notified in the first place

In the example, the tenancy later becomes treated as a 7-year lease for SDLT computational purposes. But that does not retrospectively change the original filing requirement.

So if a periodic tenancy was originally granted as a lease treated as being for less than 7 years, and it was not otherwise notifiable at that time, the fact that it later becomes treated as a 7-year lease does not itself create a notification duty.

This matters because readers often assume that once the notional term reaches 7 years, a return must then be filed. HMRC’s example says that is the wrong approach for this situation.

How to analyse it

A sensible way to analyse a continuing periodic tenancy is to ask these questions in order:

• What was the tenancy when it was first granted? In the example, it was an oral monthly periodic tenancy granted on 1 March 2005.
• How was it treated at that date for SDLT? Here, it was treated initially as a one-year lease.
• What was the effective date? In the example, it was the date of grant.
• Was the lease notifiable at the time of grant? HMRC says no, because the term when granted was less than 7 years and the tax was not chargeable at 1% or more on the consideration.
• Did the tenant remain in occupation so that the tenancy continued? If yes, the deemed or notional term may increase over time.
• Has the notional term later reached 7 years or more? In the example, yes, by 1 March 2011.
• Does that later deemed extension alter the original notification position? On HMRC’s example, no. Notifiability is still judged by the term when the lease was granted.

The key practical point is that a later remeasurement of the lease term is not the same thing as a new grant of a lease for SDLT notification purposes.

Example

Illustration based on the official example:

A tenant moves into premises on 1 March 2005 under an oral agreement paying £600 each month. For SDLT, the tenancy is initially treated as a one-year lease. Because of the length of term at grant and the level of chargeable consideration described in the example, no SDLT return is required at that stage.

The tenant stays on year after year without any new formal lease. By 1 March 2011, SDLT rules treat the tenancy as if it had a 7-year term running from 1 March 2005. Even so, HMRC’s example says there is still no need to notify the lease, because the filing test looks at the term when the tenancy was originally granted, not at the longer notional term that arises later.

Why this can be difficult in practice

This area is easy to misunderstand because the tax treatment changes over time, but not every consequence changes with it.

Three points commonly cause confusion:

• A lease can be treated as having a longer term later on without that creating a fresh obligation to notify.
• The phrase “treated as being for a term of 7 years” can sound as though the lease has become a new 7-year lease in every respect. That is not what HMRC’s example says.
• Readers may mix up chargeability, valuation, and notification. They are related, but they are not identical questions.

The example is also fact-specific. It assumes the tenancy simply continues on the same basis, with the same monthly rent, and refers to the threshold position in force for that example. If the facts differ, the analysis may differ too. For instance, one would need to consider carefully whether there has merely been a continuation of the existing periodic tenancy or some different transaction.

Key takeaways

• A continuing periodic tenancy can later be treated as having a longer notional term for SDLT purposes.
• That later deemed extension does not, on HMRC’s example, change whether the lease had to be notified when first granted.
• For notification, the crucial question is the term of the lease at the date of grant, not the longer term it may later be treated as having.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example of Tax Treatment for Continuing Indefinite Term Leases

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