Stamp duty when a commercial lease starts before it is granted
In brief
A commercial lease agreement can trigger SDLT when it is substantially performed, even if the formal lease follows later.
- The earlier tax calculation can cover the full lease term.
- HMRC’s example gives no second charge on the later formal grant.
- Possession, payments, term and rent review details all matter.
Scroll down for the full analysis.
Read the original guidance here:
Stamp duty when a commercial lease starts before it is granted
Stamp duty when a commercial lease starts before it is granted
You can owe stamp duty on a commercial lease before anyone signs the formal lease. If you act on an agreement for lease first, the tax point may arrive early. That can matter a great deal.
What this rule is about
Businesses often agree a lease, take steps under that agreement, and sign the final document later. This is called substantial performance. It can happen when the tenant takes possession, or when the tenant makes a payment that meets the legal test under the agreement. That is substantial performance.
SDLT may arise before signing. For stamp duty purposes, once substantial performance occurs under an agreement for lease, the law treats that agreement as creating a lease before a formal document is signed. That is the result.
What the official source says
HMRC’s example concerns a non-residential agreement for lease that was exchanged on 1 January 2015 and then substantially performed on 1 February 2015, before the formal lease followed. Granted on 1 May 2015, the formal lease nevertheless ran until 30 April 2025.
- The agreement counts as a lease from 1 February 2015.
- Its term runs to 30 April 2025, not merely to the formal grant date.
- The rent review at the end of year five forms part of the lease terms.
- The rent is tested through its net present value, or NPV.
- Stamp duty is due if that NPV exceeds the relevant threshold.
- The earlier transaction needs a return if it is notifiable.
Although HMRC’s manual is guidance rather than law, its example here reflects the statutory rule that applies where an agreement for lease has been substantially performed. The rule governs.
What this means in practice
Your key date is not always the date on the lease deed. It may be the earlier date when you start using the property or make the relevant payment. From that date, the law treats the agreement as a lease.
No double charge should arise on the same full lease term. A later formal lease links to the earlier notional lease, meaning the lease the law treats as granted on substantial performance.
- Record when you first occupied or controlled the premises.
- Check when rent or other sums first became payable and were paid.
- Calculate rent over the full term that the formal lease will cover.
- Keep the agreement, lease and rent review details together.
How to analyse it
Start with the facts, not the label on the paperwork. Calling a document an agreement for lease does not prevent an earlier SDLT point.
- Was there an agreement for a lease?
- Did the tenant take possession before the formal grant?
- Did a payment make the agreement substantially performed?
- What full term did the later lease have?
- What rent, including reviewed rent, applied over that term?
- Does the NPV make the earlier transaction notifiable or taxable?
- Does the formal lease add anything that changes the earlier result?
Example
In HMRC’s example, the agreement is acted on from 1 February 2015. Although the signed lease follows three months later, on 1 May, the earlier tax calculation uses a term ending on 30 April 2025. It also takes account of the market-rent review after year five.
So the later document does not restart the SDLT calculation. HMRC says the first calculation already covers the whole lease term. No further return or tax should follow on the formal grant in that example.
Why this can be difficult in practice
This is the part people miss: a deal can cross the tax line before completion. Possession is not limited to having keys. Rights to receive property income can matter. So can payments made.
- Early access arrangements may need close checking.
- A payment may trigger the rule even before the formal lease arrives.
- Rent review wording can affect the NPV calculation.
- A later lease with different terms may not match the simple example.
Key takeaways
- Stamp duty can arise before a commercial lease is formally granted.
- The calculation can cover the full eventual lease term.
- In HMRC’s example, the later grant creates no second SDLT charge.
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 has been substantially performed
- FA 2003 Schedule 5 para 2 — calculating stamp duty on lease rent
- FA 2003 Schedule 17A para 12A — agreements for leases completed after performance
- FA 2003 section 77 — when a land transaction needs a return
- FA 2003 section 81A — further returns after later linked transactions
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 source does not give the rent figures, so it does not show the net present value calculation or the SDLT amount.
- Whether an agreement has been substantially performed depends on what happened, including possession and payments.
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
- dates of exchange, possession, rent payments and formal grant
- the lease term and rent review clauses
- the rent schedule used for the net present value calculation
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 commercial 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 has been substantially performed https://www.legislation.gov.uk/ukpga/2003/14/section/44/2025-11-17 - FA 2003 Schedule 5 para 2 - calculating stamp duty on lease rent https://www.legislation.gov.uk/ukpga/2003/14/schedule/5/paragraph/2/2025-11-17 - FA 2003 Schedule 17A para 12A - agreements for leases completed after performance https://www.legislation.gov.uk/ukpga/2003/14/schedule/17A/paragraph/12A/2025-11-17 - FA 2003 section 77 - when a land transaction needs a return https://www.legislation.gov.uk/ukpga/2003/14/section/77/2025-11-17 - FA 2003 section 81A - further returns after later linked transactions 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/sdltm17020 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 source does not give the rent figures, so it does not show the net present value calculation or the SDLT amount. - Whether an agreement has been substantially performed depends on what happened, including possession and payments. 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 commercial lease starts before it is granted
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