Example of Overlap Relief Calculation for Lease with SDLT Details

SDLT overlap relief where a replacement lease has lower rent

When an old lease is surrendered and replaced by a new lease of the same property, SDLT overlap relief stops the same rental period being taxed twice. If the rent already taxed under the old lease is higher than the rent under the new lease during the overlap period, the rent used for the new lease’s SDLT net present value calculation is reduced to £0 for those overlap years, and the actual new rent is used only after the overlap ends.

• Overlap relief applies where a new lease begins before the old lease would have expired, creating an overlap period.
• In the example, the old lease rent was £144,000 a year and the new lease rent was £110,000 a year, with an 11-year overlap from 1 April 2018 to 31 March 2029.
• Because the old rent already taxed was higher than the new rent, years 1 to 11 of the new lease are treated as having rent of £0 for SDLT rent calculations.
• From year 12 onwards, the new lease rent of £110,000 a year is used in the NPV calculation.
• The amount for overlap years cannot be reduced below nil, and this relief does not repay SDLT on the old lease.
• This calculation must usually be done manually, as HMRC’s calculator does not handle this adjusted rent profile, and different rules may apply if the new lease has variable rent.

Scroll down for the full analysis.

SDLT overlap relief on the grant of a replacement lease: where the old rent is higher than the new rent

This page explains how overlap relief works for Stamp Duty Land Tax when an existing lease is surrendered and replaced by a new lease over the same property, and the rent under the old lease is higher than the rent under the new one. The point matters because SDLT on rent is based on the net present value of the rent, and overlap relief is designed to stop the same rental period being taxed twice.

What this rule is about

When a tenant gives up an existing lease and takes a new lease of the same premises, there may be a period during which the new lease overlaps with what would have been the remaining term of the old lease. Without a relieving rule, SDLT on rent could effectively be charged again on the same period of occupation.

Overlap relief deals with that problem. In broad terms, when calculating SDLT on the rent under the new lease, you adjust the rent taken into account for the overlap period so that rent already taxed under the old lease is not taxed again.

The example in the official material deals with a simple but important situation: the rent under the old lease is greater than the rent under the new lease throughout the overlap period.

What the official source says

The source example uses these facts:

• An old lease was granted on 1 April 2004 for 25 years, expiring on 31 March 2029.
• The rent under the old lease was £144,000 a year.
• The net present value of the old lease was £2,373,337.
• SDLT of £22,233 was payable on the rent under the old lease.
• The old lease was surrendered and a new lease was granted on 1 April 2018 for 150 years.
• The rent under the new lease was £110,000 a year.

The overlap period runs from 1 April 2018 to 31 March 2029, which is 11 years. For those 11 years, the rent under the old lease that was already brought into the first NPV calculation was £144,000 a year, while the rent under the new lease is only £110,000 a year.

The official conclusion is that, because the new lease is not a variable rent lease, the special rules in Finance Act 2003 Schedule 17A paragraph 7 do not apply. Instead, when calculating the NPV of the rent under the new lease, the rent to be used for years 1 to 11 is £0. For years 12 to 150, the rent used is £110,000 a year.

The reason is that the old rent already taken into account exceeds the new rent for the overlap period. The amount used in the new lease calculation cannot be reduced below nil, so the overlap adjustment produces £0 rather than a negative figure.

The source also notes that HMRC’s calculator will not handle this calculation, so it must be done manually.

What this means in practice

In practice, the overlap relief does not give a repayment of SDLT charged on the old lease. Instead, it changes the rent profile used to calculate SDLT on the new lease.

Here, the practical effect is straightforward:

• For the first 11 years of the new lease, no rent is counted in the NPV calculation for SDLT purposes.
• From year 12 onwards, the actual new rent of £110,000 a year is counted.

That happens because the rent already taxed on the old lease for the overlap years was higher than the rent under the new lease. There is therefore no additional rental value to bring into charge for those years under the new lease.

This is an important point for conveyancers and tax advisers. If they simply input the full rent for the whole 150-year term, they may overstate the NPV and overpay SDLT. The overlap period must be identified and the rent profile adjusted correctly.

How to analyse it

A sensible way to analyse this kind of case is:

• Identify the old lease and confirm that SDLT on rent was previously calculated on it.
• Identify the new lease and its start date.
• Work out the overlap period: this is the period when the new lease runs before the old lease would have expired.
• Compare the rent already taken into account for the old lease with the rent payable under the new lease during that overlap period.
• For each overlap year, reduce the new lease rent used in the NPV calculation by the amount already taxed under the old lease.
• If that subtraction would produce a negative number, use £0 instead.
• After the overlap period ends, use the actual rent under the new lease.

On the facts of the example, the overlap years are years 1 to 11 of the new lease. In each of those years, the new rent of £110,000 is fully covered, and more than covered, by the old rent of £144,000 already brought into charge. So the adjusted amount is nil for each of those years.

A key question is whether the new lease is one with variable rent. The source says it is not, and therefore the specific rule in Schedule 17A paragraph 7 is not relevant. That matters because the treatment of rent can differ where rent is uncertain or variable.

Example

Illustration based on the official example:

A tenant has a lease due to run until 31 March 2029 at £144,000 a year. In 2018, that lease is surrendered and replaced with a new 150-year lease at £110,000 a year.

Because the new lease starts on 1 April 2018, there are 11 years when the new lease overlaps with the remaining term of the old lease. For SDLT on rent, those 11 years are not taxed again under the new lease because the old lease rent already taxed for that period was higher than the new rent. So:

• Years 1 to 11 of the new lease are treated as having rent of £0 for the NPV calculation.
• Years 12 to 150 are treated as having rent of £110,000 a year.

The SDLT calculation on the new lease must therefore be based on that adjusted rent stream, not on £110,000 for the full 150 years.

Why this can be difficult in practice

The official example is arithmetically simple, but real cases can be harder.

First, you need to identify exactly what rent was included in the earlier NPV calculation for the old lease. The overlap relief works by reference to rent already brought into account, so mistakes in the original rent profile can affect the new calculation.

Second, the overlap period must be worked out accurately. Even a small date error can affect the number of years relieved.

Third, the source makes clear that HMRC’s calculator will not handle this particular calculation. That means the person preparing the return must compute the adjusted NPV manually. In practice, that increases the risk of error and makes it more important to keep a clear working paper showing how the rent for each period was derived.

Fourth, this example is expressly limited to a case where the new lease is not a variable rent lease. If the rent is contingent, uncertain, review-based, or otherwise variable in a way that engages different statutory rules, the analysis may not be the same.

Finally, overlap relief does not mean the overlap years are always ignored in full. They are ignored here only because the old rent exceeds the new rent. If the new rent were higher, there could still be an amount to include for the overlap years.

Key takeaways

• When a lease is surrendered and replaced, SDLT overlap relief can prevent the same rent period being taxed twice.
• If the old rent already taxed is higher than the new rent for the overlap period, the rent used for those overlap years in the new lease NPV calculation is reduced to £0, not below.
• In this kind of case, the SDLT rent calculation may need to be done manually because HMRC’s calculator does not handle the adjusted rent profile.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example of Overlap Relief Calculation for Lease with SDLT Details

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