Example 5: Overlap Relief Calculation for Lease Surrender and Renewal

SDLT overlap relief on a replacement lease where the new rent is lower

When an old lease is surrendered and replaced by a new lease over the same property, SDLT overlap relief stops the same rental value being taxed twice for the overlapping period. If the rent actually payable under the old lease during that overlap is higher than the rent under the new lease, the rent used for the new lease SDLT calculation can be reduced to £0 for that period, but not below £0.

• Overlap relief applies where a new lease replaces an old lease before the old lease would have ended, creating an overlap period.
• For the overlap period, you compare the rent actually payable under the old lease at that time with the rent under the new lease.
• The old lease rent used for overlap relief may be a reviewed rent that was not used in the original SDLT NPV calculation for the old lease.
• In the example, the old lease rent during the 11-year overlap was £240,000 a year and the new lease rent was £210,000 a year, so the new lease rent was reduced to £0 for years 1 to 11.
• After the overlap ends, the normal new lease rent is used in the NPV calculation, so here £210,000 a year applied from year 12 onwards.
• HMRC’s calculator may not handle this type of case, so the NPV may need to be worked out manually, especially where the facts are more complex.

Scroll down for the full analysis.

SDLT overlap relief where a replacement lease has lower rent than the old lease

This page explains how overlap relief works when an existing lease is surrendered and replaced by a new lease, and the rent under the old lease during the overlap period is higher than the rent under the new lease. The source material deals with a technical SDLT calculation point, but the practical issue is simple: you should not be charged SDLT twice on the same rental value for the period covered by both leases.

What this rule is about

Overlap relief applies where an old lease is given up and a new lease is granted over the same property, and part of the term of the old lease would otherwise have continued. In that situation, the new lease may overlap with the remaining term of the old lease.

For SDLT on rents, the tax charge is based on the net present value, or NPV, of the rent payable under the lease. Without relief, the rent for the overlap period could effectively be taxed twice: once under the old lease and again under the new one. Overlap relief is designed to prevent that.

This example looks at a case where the old lease rent, at the time the new lease is granted, is higher than the rent under the new lease. That matters because the overlap adjustment can reduce the rent brought into the NPV calculation for the new lease, but not below nil.

What the official source says

The source example uses these facts:

• An old lease began on 1 April 2004 and was due to end on 31 March 2029.
• The initial rent was £144,000 a year inclusive of VAT.
• The lease provided for five-yearly rent reviews to the higher of market rent or passing rent.
• After the rent review effective from 1 April 2014, the passing rent was £240,000 a year inclusive of VAT.
• The old lease was surrendered and replaced on 1 April 2018 by a new lease for 150 years.
• The new lease rent was £210,000 a year inclusive of VAT, with no rent reviews.

The overlap period ran from 1 April 2018 to 31 March 2029, being the 11 years that remained on the old lease when the new lease was granted.

The official source says that, for the old lease, the first rent review after five years was ignored in the original NPV calculation. Even so, for overlap relief purposes, the relevant old rent during the overlap period was £240,000, because that was the rent actually payable at that time under the terms of the old lease.

The source then states that the new lease was not a lease with variable rent, so the special rules for later rent re-calculations were not relevant. The NPV calculation for the new lease should therefore use:

• £0 rent for years 1 to 11 inclusive, because during that overlap period the old rent exceeded the new rent, and
• £210,000 rent for years 12 to 150 inclusive.

The source also notes that HMRC’s calculator would not deal with this calculation and that it had to be done manually.

What this means in practice

The important practical point is that overlap relief looks at the rent payable under the old lease during the overlap period, even if that rent was not used in the original NPV calculation for the old lease.

That can seem surprising. In this example, the old lease’s first rent review was ignored when the old lease NPV was first calculated. But once the new lease is granted in 2018, the overlap relief exercise asks a different question: what rent was payable under the old lease during the overlap period? The answer was £240,000 a year. That figure was therefore “taken into account” for overlap relief.

Because the new lease rent was only £210,000 a year, the overlap adjustment wiped out the rental value for the first 11 years of the new lease. But it could not create a negative figure. So the rent used for those years was reduced to £0, not below £0.

From year 12 onwards, there was no overlap because the old lease would by then have expired. So the full new lease rent of £210,000 a year was brought into the NPV calculation for the rest of the 150-year term.

In short, where the old lease rent during the overlap period is equal to or more than the new lease rent, the overlap relief may eliminate the rental element of SDLT for that overlap period.

How to analyse it

A sensible way to approach this type of case is:

• Identify the old lease and its contractual expiry date.
• Identify the date on which the old lease is surrendered and the new lease is granted.
• Work out the overlap period. This is the period when the old lease would still have been running if it had not been surrendered.
• Determine the rent actually payable under the old lease during that overlap period, under its terms as they stood at that time.
• Determine the rent payable under the new lease during the same period.
• Compare the two figures year by year for the overlap period.
• Reduce the rent used in the new lease NPV calculation by the old lease rent for that same period, but not below £0.
• After the overlap period ends, use the normal rent payable under the new lease.

This example also shows that you should not assume that the rent figure used in the original SDLT calculation for the old lease is the only relevant figure. For overlap relief, the key question is what rent was payable under the old lease during the overlap period.

Example

Illustration based on the official example:

• The old lease would have continued until 31 March 2029.
• It is surrendered on 1 April 2018 and replaced with a new lease.
• That means there are 11 overlap years.
• During those 11 years, the old lease rent is £240,000 a year.
• The new lease rent is £210,000 a year.

Because the old rent exceeds the new rent throughout the overlap period, the rent taken into account for the new lease for years 1 to 11 is reduced to £0. For year 12 onwards, the overlap has ended, so the NPV calculation uses the full £210,000 annual rent.

Why this can be difficult in practice

The main difficulty is that the overlap relief exercise does not necessarily track the original NPV computation for the old lease. A reader might assume that if a reviewed rent was ignored in the old lease calculation, it should also be ignored here. The source makes clear that this is not always right.

The fact-sensitive issue is whether the higher old rent was actually payable during the overlap period under the lease terms. If it was, it may still be relevant for overlap relief even though it did not feed into the earlier NPV calculation.

Another practical difficulty is computational. The source states that HMRC’s calculator could not handle this pattern of inputs, so the NPV had to be calculated manually. That matters for conveyancers and advisers because the SDLT return still needs the correct figures even where the standard tool is not sufficient.

A further point is that the source expressly says the new lease was not a variable rent lease, so the special provisions dealing with later rent changes were not engaged. That means you should be careful before applying this example to a lease where the new rent can vary.

Key takeaways

• Overlap relief can reduce the rent counted for SDLT on a replacement lease during the period that overlaps with the surrendered lease.
• The relevant old lease rent is the rent actually payable during the overlap period, even if that figure was not used in the original NPV calculation for the old lease.
• The overlap adjustment cannot reduce the rent for the new lease below £0, and unusual cases may require a manual NPV calculation.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Example 5: Overlap Relief Calculation for Lease Surrender and Renewal

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