Stamp duty when a business lease starts before it is granted
Early performance can bring SDLT forward
HMRC’s 2015 example shows how an agreement for a business lease can create a temporary lease for SDLT before the final lease is granted.
- Check when possession or rent payments began.
- Do not count overlapping rent twice.
- Do not rely on the example’s historic filing deadline for a current lease.
Scroll down for the full analysis.
Read the original guidance here:
Stamp duty when a business lease starts before it is granted
Stamp duty when a business lease starts before it is granted
A business lease can trigger stamp duty before the parties formally grant it, where early performance of the agreement meets the SDLT rules. In HMRC’s example, that early performance creates a temporary one-year lease for SDLT purposes. The parties may then need to file a return, calculate tax and make a further calculation when they sign the real lease.
What this rule is about
Usually, people expect stamp duty to follow the signing of the final lease. That is not always how it works. If the parties substantially perform an agreement for a lease first, SDLT can treat the agreement as a lease from that earlier date.
Substantial performance has a specific meaning. It can happen when the buyer takes possession of most or all of the property. It can also happen when a substantial amount is paid. Where rent is the only payment, the first rent payment can be enough.
That distinction sounds technical. It can move the tax date forward by months.
What the official source says
HMRC’s manual gives a dated example of a non-residential agreement under which the parties planned a ten-year lease, exchanged the agreement on 1 January 2015, and substantially performed it on 1 February 2015. They did not grant the final lease until 1 May 2015.
- The parties agreed a term of ten years from the date on which they would grant the lease.
- On 1 February, the parties did not know that future grant date.
- HMRC therefore treated the agreement as a one-year temporary lease, running from 1 February 2015 to 31 January 2016.
- SDLT was due only if the net present value of that year’s rent exceeded the threshold then in force.
- If SDLT was due, HMRC required the parties to report the temporary lease by 2 March 2015, 30 days after substantial performance under the rules applying to this example.
- When the parties granted the actual lease on 1 May 2015, HMRC linked it to the temporary lease.
The law calls the temporary lease a notional lease. The tax rules treat it as existing even though the parties had not yet granted the final document.
The final lease does not simply replace the earlier tax calculation. Instead, the rules extend the temporary lease from 1 February 2015 to the end of the actual lease term, and the parties must consider the rent again without charging the same rent twice. The overlap prevents duplication.
What this means in practice
The key point is timing. If occupation or payment starts before the parties grant the lease, do not assume SDLT waits for the final paperwork, because the agreement itself may trigger the first tax event. Check the earlier date.
- Record the day the agreement was signed.
- Record the day possession started.
- Check the date of the first rent payment.
- Work out whether the lease start date was certain at that time.
- Keep the first SDLT calculation and return with the lease papers.
- Revisit the SDLT position when the final lease is granted.
In the example, the later grant makes the combined lease term certain. HMRC says the parties then need a further notification because they have not already taken into account all rent for the longer term.
This is not a new tax on the same rent. It adjusts the calculation to reflect the full lease once its real terms are known.
How to analyse it
Start with the facts, not the label on the document. Calling something an agreement for lease does not settle the SDLT position. What happened on the ground matters.
- Was there an agreement for a lease?
- Did the parties substantially perform it before they granted the final lease?
- Did possession begin, or was rent first paid, before that grant?
- What lease term and rent were known on that earlier date?
- Did the unknown start date make the temporary lease one for an indefinite term?
- What rent was included in the first net present value calculation?
- When did the parties grant the actual lease?
- Which part of the later rent period overlaps with the temporary lease?
- Does the later grant require a return or a further return?
For lease rent, SDLT uses net present value. This method gives lower weight to rent due further in the future. It is not simply the total rent over the whole term.
Example
Take HMRC’s figures. The rent is £210,000 a year. The temporary lease runs from 1 February 2015 to 31 January 2016. The parties grant the actual ten-year lease on 1 May 2015, so part of its first year overlaps with the temporary lease.
HMRC’s manual says the calculation should include only the period from 1 February 2016 to 30 April 2016 as new first-year rent, rather than rent already included in the temporary lease calculation. That is 89 days. The figure used is £51,205: £210,000 multiplied by 89 and divided by 365.
For the rest of the term, HMRC’s example uses annual rent of £210,000. It also states that there is a market-rent review at the end of year five. The manual does not give the final SDLT amount.
Why this can be difficult in practice
People often focus on the date the final lease was signed. That may be the wrong date. Early access, fitting-out work, rent payments or receiving income from the premises may be more important.
- A licence for temporary access may still need close checking.
- The first payment may matter even where no final lease exists.
- An unclear lease start date can create a temporary lease calculation.
- Rent-free periods and incentives can change the rent figures.
- A rent review may need separate analysis if the future rent is not known.
- The filing period in this 2015 example is historic and is not a safe guide to a current deadline.
People often get this part wrong: the overlap adjustment is not a box they tick to claim relief, but a calculation that applies when the periods overlap and rent has already entered the earlier calculation. It is not relief.
HMRC’s example achieves the adjustment by having the parties report only rent that they did not already include in the earlier calculation. That avoids counting it twice.
Key takeaways
- Early performance can trigger SDLT before a business lease is granted.
- An unknown lease start date can initially produce a one-year temporary lease.
- When the real lease is granted, recalculate using only rent not already counted.
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 44 — when a contract is substantially performed
- FA 2003 Schedule 17A para 12A — agreements for leases performed before the lease grant
- FA 2003 Schedule 5 para 2 — tax calculation on rent under a lease
- FA 2003 Schedule 5 para 3 — net present value calculation for lease rent
- FA 2003 section 76 — duty to file a land transaction return
- FA 2003 section 81A — further returns after a later linked transaction
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 example does not state the full net present value result or the amount of SDLT due.
- The example does not explain the facts that caused substantial performance on 1 February 2015.
- A real lease may have different rent terms, dates, incentives, payments or review clauses, which can change the result.
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 signed agreement for lease and final lease
- evidence of the date possession began or rent was first paid
- the agreed rent schedule and any rent-review clause
- details of payments made before the lease was granted
- copies of any SDLT returns and payment records
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 when a business lease starts before it is granted [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 44 - when a contract is substantially performed https://www.legislation.gov.uk/ukpga/2003/14/section/44/2025-11-17 - FA 2003 Schedule 17A para 12A - agreements for leases performed before the lease grant https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/12A/2025-11-17 - FA 2003 Schedule 5 para 2 - tax calculation on rent under a lease 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 section 76 - duty to file a land transaction return https://www.legislation.gov.uk/ukpga/2003/14/section/76/2025-11-17 - FA 2003 section 81A - further returns after a later linked transaction https://www.legislation.gov.uk/ukpga/2003/14/section/81A/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/sdltm17015 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 example does not state the full net present value result or the amount of SDLT due. - The example does not explain the facts that caused substantial performance on 1 February 2015. - A real lease may have different rent terms, dates, incentives, payments or review clauses, which can change the result. 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 when a business lease starts before it is granted
Search Land Tax Advice with Google
