Understanding Overlap Relief and Rent Calculations for Lease Agreements

SDLT overlap relief for lease rent

Overlap relief can stop the same lease rent being charged to SDLT twice where an earlier lease transaction has already been taxed, such as substantial performance of an agreement for lease or a surrender and regrant. HMRC takes a broad view of rent already “taken into account”, especially where the lease terms have not changed.

• If an agreement for lease is substantially performed before the formal lease is granted, SDLT may arise at both stages, but overlap relief can remove a second charge.
• HMRC says that if the formal lease is granted on exactly the same terms, later rent increases can still be treated as already taken into account, even if they were not included in the earlier NPV calculation.
• In those unchanged-term cases, the later grant may produce no extra SDLT on the rent.
• Where old leases are surrendered and replaced with a new lease, rent for the overlap period is not taxed again if the new rent is no higher than the combined old rent.
• Only the part of the new lease term that extends beyond the overlap period is normally used for the new NPV calculation in a surrender-and-regrant case.
• The outcome can depend on whether anything material changed, such as rent, term, or premises, and the legal starting point remains paragraph 9 of Schedule 17A Finance Act 2003.

Scroll down for the full analysis.

SDLT overlap relief for lease rent: when rent is treated as already taken into account

This page explains how overlap relief works for rent when SDLT has already been charged on an earlier lease transaction. The point matters because the rules are designed to stop the same rental value being taxed twice, but working out what rent has already been taken into account can be less obvious than it first appears.

What this rule is about

SDLT can apply more than once in the life of a lease transaction. A common example is where there is substantial performance of an agreement for lease before the formal lease is granted. Another is where an existing lease is surrendered and replaced with a new lease.

In those situations, overlap relief under Schedule 17A Finance Act 2003 can reduce or eliminate a later SDLT charge where rent has already been brought into account on an earlier transaction. The key question is: what rent has already been taken into account for the earlier charge?

The source material addresses two practical situations:

• an agreement for lease that is substantially performed before the formal grant of the lease; and
• two existing leases that are surrendered and replaced by a single new lease.

What the official source says

In the first example, SDLT was charged on substantial performance of an agreement for lease by reference to the net present value of the rent for the first five years. The rent increased in year six, so that increase was not included in the NPV calculation at the substantial performance stage.

HMRC’s view in the manual is that, if the lease is later granted without any change in its terms, the year six increase is still treated as having been “taken into account” on substantial performance for the purposes of paragraph 9 of Schedule 17A. In other words, even though that increase was not included in the actual NPV calculation at the earlier stage, it is still regarded as part of the rent already taken into account when the formal lease is granted.

The practical result given by the source is that, where nothing has changed between substantial performance and completion, there is no additional SDLT to pay on the later grant.

In the second example, two separate leases of different floors are surrendered and replaced with one new lease covering all three floors. Each old lease ran from 1 January 2012 for 15 years at £350,000 a year. Both are surrendered on 30 June 2015, and a new 20-year lease is granted from that date at £700,000 a year.

The source says overlap relief is available. For the overlap period, running from 1 July 2015 to 31 December 2026, the rent under the new lease is not brought into account again because the rent has not increased compared with the combined rent under the old leases. For the remaining part of the new lease term, from 1 January 2027 to 30 June 2035, the annual rent of £700,000 is used in calculating the NPV.

What this means in practice

The practical message is that overlap relief is not limited to rent that was literally included in the arithmetic of an earlier NPV calculation. In the first example, HMRC accepts a broader approach: if the lease terms are unchanged, later rent under those terms can still count as rent already taken into account for overlap relief purposes.

That matters because a narrow reading could otherwise produce a second SDLT charge when the formal lease is granted, even though the transaction was already taxed when substantially performed. The manual example indicates that HMRC does not apply the rule that way where the lease terms remain the same.

In surrender-and-regrant cases, the source shows the same underlying principle. You compare the rent under the new lease with the rent that has already effectively been taxed under the old leases during the overlapping period. If there is no increase, there is no further rent to bring into account for that overlap period. Only the part of the new lease term that extends beyond the old leases is used for the new NPV calculation.

How to analyse it

A sensible way to approach this issue is to ask the following questions.

• What is the earlier land transaction that may already have triggered SDLT? For example, substantial performance of an agreement for lease, or the grant of earlier leases that are now being replaced.
• What is the later transaction? For example, formal grant of the lease, or grant of a replacement lease.
• Is there an overlap period during which the later transaction covers rent that has already been taxed in substance?
• Have the lease terms changed between the earlier and later transaction? The first example depends expressly on there being no variation or other change.
• Has the rent actually increased for the overlap period? If it has not, the source indicates there may be no further rent to bring into account for that period.
• For any part of the new lease term that goes beyond the overlap period, what rent should be used for the NPV calculation?

In agreement-for-lease cases, the source points especially to the importance of checking whether anything changed between substantial performance and formal completion. If nothing changed, HMRC accepts that the later rent pattern under the unchanged lease has already been taken into account for overlap relief purposes.

In surrender-and-regrant cases, the key comparison is between the old rent position and the new rent position during the overlap period. The source example assumes a like-for-like combined rent, so there is nothing extra to tax during that period.

Example

Illustration: a tenant substantially performs an agreement for lease in year 1. SDLT is paid at that point based on the NPV of the first five years’ rent. The lease provides for a rent increase from year 6. The formal lease is then granted nine months later on exactly the same terms.

On the approach set out in the source, the year 6 increase is treated as having already been taken into account for overlap relief purposes, even though it was not part of the earlier five-year NPV calculation. Because the lease terms have not changed, the later grant does not produce additional SDLT.

Why this can be difficult in practice

The phrase “taken into account” can be awkward. In ordinary language, a reader might think it means only amounts that were actually fed into the earlier SDLT calculation. The first example shows that HMRC reads it more broadly in this context.

The result may depend heavily on whether the lease terms have remained unchanged. The source expressly refers to there being no variation or other change. If the rent terms, term length, demised premises, or other material features have changed, the analysis may not be the same.

Another practical difficulty is identifying the correct overlap period in surrender-and-regrant cases and matching the old rent to the new rent. The source example is straightforward because the combined old rent and the new rent are the same. Real cases may be less tidy, especially where only part of the premises overlap, rents are stepped, or the old leases do not align neatly with the new one.

The source is also HMRC manual material, not the legislation itself. It is useful evidence of HMRC’s approach, but the legal starting point remains paragraph 9 of Schedule 17A Finance Act 2003.

Key takeaways

• Overlap relief is aimed at preventing the same lease rent being charged to SDLT twice.
• HMRC accepts that, where a lease is granted on unchanged terms after substantial performance, later rent increases under those terms can still count as already taken into account for overlap relief purposes.
• In surrender-and-regrant cases, if the rent during the overlap period has not increased, the new SDLT rent calculation may only need to cover the part of the new term beyond that overlap period.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding Overlap Relief and Rent Calculations for Lease Agreements

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