Stamp duty overlap relief: HMRC’s replacement lease example
Overlap relief in brief
When an old lease ends early and a replacement lease begins, SDLT can reduce new rent for the period that the old lease would still have run.
- Use the old rent included in the first SDLT calculation.
- Apply the reduction only during the overlap period.
- HMRC says its calculator cannot handle this example.
Scroll down for the full analysis.
Read the original guidance here:
Stamp duty overlap relief: HMRC’s replacement lease example
Ending an old lease early and taking a new one over the same place should not make overlapping rent count twice for stamp duty land tax.
In HMRC’s example, that reduces the rent used for the new lease’s first 11 years from £175,000 to £31,000 a year.
What this rule is about
Stamp duty on a lease can depend on the net present value, or NPV, of its rent. NPV puts future rent into one value at the start.
A replacement lease can create a problem because the old lease may still have had years left when it ended.
Overlap relief deals with that problem. In doing so, it recognises rent already counted when SDLT was calculated on the old lease.
Relief applies only during concurrent terms.
What the official source says
HMRC’s manual gives an example in which a tenant gives up an old lease and receives a much longer new lease of the same premises.
Where the new lease replaces an old lease before that old term would have expired, the law reduces the new rent by the old rent used in the first SDLT calculation.
That prevents double counting.
- On 1 April 2004, the old lease began with a 25-year term.
- Without its early end, it would have expired on 31 March 2029.
- On 1 April 2018, the tenant surrendered it.
- On that day, the landlord granted a new 150-year lease.
- As a result, the overlap runs for 11 years, from 1 April 2018 to 31 March 2029.
- For the old calculation, annual rent was £144,000.
- Under the new lease, annual rent is £175,000.
According to the manual, the new lease does not have variable rent. Separate rules for rent that varies, or remains uncertain, therefore do not apply.
Because HMRC says its calculator will not cope with this calculation, someone must work through the NPV manually, even though the new lease has no variable rent.
A manual calculation is required.
What this means in practice
For years one to 11 of the new lease, subtract £144,000 from £175,000. That leaves £31,000 a year.
After that adjustment for years one to 11, years 12 to 150 have no overlap, so the NPV calculation uses the full annual rent of £175,000.
The reduction has ended.
- Use £31,000 as the rent input for years 1 to 11.
- Use £175,000 as the rent input for years 12 to 150.
- Do not subtract the old rent after 31 March 2029.
- Do not use a negative figure if old rent exceeds new rent.
A long lease can have a large rental value for SDLT. Missing the overlap adjustment can inflate that value.
Although the adjustment removes rent already reflected in the old calculation during the overlap, it does not erase the new rent or alter rent after the old lease would have ended.
Only double counting is removed.
How to analyse it
Start with the documents, not the label that the parties use. Calling an arrangement a renewal does not settle the point.
You need to establish whether the old lease ended in return for the new one, and whether the relevant premises match closely enough.
- Find the date of the new lease.
- Work out when the old lease would have ended without the surrender.
- Count the period between those two dates.
- Check the rent that the old SDLT calculation actually used.
- Subtract that old rent from new rent during the overlap.
- Use full new rent once the overlap ends.
- Check whether the new rent varies or remains uncertain.
What is the key figure? It is not always the rent shown in the old lease today.
Instead, the legislation points to the rent taken into account when SDLT on the old lease was calculated.
Example
HMRC’s illustration begins with an old lease paying £144,000 each year and due to end on 31 March 2029.
It says that old lease had an NPV of £2,373,337, and SDLT on its rent came to £22,233.
On 1 April 2018, the tenant gives up that lease and takes a new 150-year lease at £175,000 a year, replacing a term that would otherwise have continued.
This is the replacement lease.
For the 11 overlap years, the calculation uses £175,000 less £144,000: £31,000. From year 12 onwards, it uses £175,000.
HMRC does not give the final NPV or final SDLT figure for the new lease in this example.
Why this can be difficult in practice
The arithmetic may look simple, but the facts can be less clear. A new lease may cover extra space, change the tenant, or follow several linked agreements.
Each detail can affect whether the overlap rule applies and which rent figure you deduct.
- Do not assume every lease extension gets overlap relief.
- Check whether the new premises are the same or substantially the same.
- Keep the original SDLT calculation for the old lease.
- Separate a fixed rent from rent that can change under the lease.
- Do not expect HMRC’s calculator to produce this result automatically.
HMRC’s manual is guidance, not law. Finance Act 2003 contains the legal rule.
Still, the example clearly shows how HMRC says it will apply that rule to a fixed-rent replacement lease.
Key takeaways
- Overlap relief can stop the same rent counting twice.
- The deduction lasts only until the old lease would have ended.
- In HMRC’s example, the first 11 years use rent of £31,000.
Technical analysis
For advisers, and for anyone who wants to check the law behind this page. You do not need this section to understand the guidance above.
Legislation
- FA 2003 section 56 — sdlt calculation where a lease includes rent
- FA 2003 Schedule 5 para 1 — rent-based sdlt calculation for lease transactions
- FA 2003 Schedule 5 para 2 — tax calculation using the rental value bands
- FA 2003 Schedule 5 para 3 — net present value calculation for lease rent
- FA 2003 Schedule 17A para 7 — rules for rent that varies or remains uncertain
- FA 2003 Schedule 17A para 9 — rent reduction where old and new leases overlap
Official guidance
The pages below are HMRC’s guidance. Guidance is not law. It sets out how HMRC reads the legislation, and it is not binding on you, on a tribunal or on a court. Where guidance and the legislation differ, the legislation wins. HMRC can also change or withdraw guidance, and it may not cover your facts.
Where this is not settled
- The HMRC page gives the rent inputs for the new net present value calculation, but it does not state the resulting net present value or SDLT amount.
- Whether premises are the same or substantially the same can depend on the lease documents and the property facts.
Evidence you would need
This kind of case is decided on the facts of the individual property. These are the records that usually settle it, and the ones an adviser would ask you for.
- the old and new lease documents
- the surrender agreement and new lease date
- the old lease expiry date without the surrender
- the rent used in the original SDLT calculation
- the rent terms for every year of the new lease
- evidence that the premises are the same or substantially the same
Explore this with an AI
Readers often want to test their own situation. Copy the prompt below into ChatGPT, Claude or Gemini. It hands the model the actual legislation for this page rather than letting it answer from memory, and tells it to be explicit about what is uncertain. What comes back is information, not advice – check it against the links above.
I am researching UK Stamp Duty Land Tax (SDLT), which applies in England and Northern Ireland. MY QUESTION Stamp duty overlap relief: HMRC’s replacement lease example [Replace this with your own situation: what you are buying, the price, the dates, who the buyer is, and what you plan to do with the property.] THE LAW THIS TURNS ON - FA 2003 section 56 - sdlt calculation where a lease includes rent https://www.legislation.gov.uk/ukpga/2003/14/section/56/2025-11-17 - FA 2003 Schedule 5 para 1 - rent-based sdlt calculation for lease transactions https://www.legislation.gov.uk/ukpga/2003/14/schedule/5/paragraph/1/2025-11-17 - FA 2003 Schedule 5 para 2 - tax calculation using the rental value bands https://www.legislation.gov.uk/ukpga/2003/14/schedule/5/paragraph/2/2025-11-17 - FA 2003 Schedule 5 para 3 - net present value calculation for lease rent https://www.legislation.gov.uk/ukpga/2003/14/schedule/5/paragraph/3/2025-11-17 - FA 2003 Schedule 17A para 7 - rules for rent that varies or remains uncertain https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/7/2025-11-17 - FA 2003 Schedule 17A para 9 - rent reduction where old and new leases overlap https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/9/2025-11-17 Guidance page from HMRC on this topic (guidance, not law): https://www.gov.uk/hmrc-internal-manuals/stamp-duty-land-tax-manual/sdltm16020 HOW I WANT YOU TO ANSWER 1. Work from the legislation above. Read it before answering. Guidance from HMRC is its view of the law, not the law, and does not bind a tribunal or a court. 2. Tell me what the rule actually requires, in plain English. 3. Tell me which facts decide the answer, and which facts would change it. 4. Tell me what evidence I would need to support the position. 5. Be explicit about anything unsettled or fact-sensitive. Do not guess. 6. Your training data has a cutoff and SDLT rates and reliefs change at fiscal events. Say so if you are not sure the law is current. POINTS ALREADY KNOWN TO BE UNCERTAIN ON THIS TOPIC - The HMRC page gives the rent inputs for the new net present value calculation, but it does not state the resulting net present value or SDLT amount. - Whether premises are the same or substantially the same can depend on the lease documents and the property facts. Do not give me a conclusion you cannot support from the provisions above.
Legislation links show Finance Act 2003 as it stood on 2025-11-17. The law may have changed since, and the rules that apply are those in force on the date of your transaction. The official guidance this page is based on is here.
This page was last updated on 1 September 2026
Useful article? You may find it helpful to read the original guidance here: Stamp duty overlap relief: HMRC’s replacement lease example
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