Examples of Rent Payable Before Lease Grant and Tax Implications

SDLT treatment of rent before a lease is formally granted

When a lease is granted on one date but says it starts earlier, SDLT does not automatically treat the whole earlier period as rent under the new lease. The key question is what the payments for that earlier period are legally for. If no rent is recoverable before the grant date, that period is usually ignored for the lease rent NPV calculation. Where a tenant is holding over, the treatment depends on whether payments relate to the old lease, a variation, or the new lease, and whether the old lease was under stamp duty or SDLT.

• A backdated start date on its own does not decide the SDLT position; the legal nature of the payments matters most.
• If no rent is legally due for the period before the lease is granted, that earlier period is ignored when calculating SDLT on rent.
• In holding-over cases, sums paid may belong to the old lease rather than the new lease, so they may fall outside the SDLT charge on the new lease.
• If an increased amount paid during holding over is really for getting the new lease, HMRC may treat that increase as a premium instead of rent.
• If the old lease was already within SDLT, the new lease may be charged on the full backdated rent, but overlap relief may reduce double counting and filing duties can arise during holding over.

Scroll down for the full analysis.

How SDLT treats rent for a period before a lease is formally granted

This page explains what happens when a lease is granted on one date, but is expressed to start earlier. The key issue is whether amounts linked to that earlier period count as rent for SDLT purposes, and if so, how they are taxed. This matters because SDLT on leases can be charged by reference to the net present value of the rent, and in some cases an amount may instead be treated as a premium.

What this rule is about

Sometimes a lease is completed after the date from which it is said to run. That can happen for administrative reasons, to align lease terms across a development, or because parties have continued in occupation while negotiating a new lease.

The tax question is not answered simply by looking at the dates written into the lease. You need to ask what, in substance, the payments for the earlier period are for.

The official material distinguishes between different situations:

• where the lease is backdated but no rent is actually recoverable for the earlier period;
• where a tenant has been holding over under an old lease while a new lease is negotiated; and
• where payments made during that earlier period relate either to the old lease, to a variation of the old lease, or to the grant of the new lease.

Those distinctions affect whether the amount is ignored, included in the rent for the NPV calculation, or treated as a premium instead.

What the official source says

The source gives two examples.

In the first example, a lease is granted on 1 July 2015 for a term of 5 years from 1 January 2015 at £45,000 a year. The lease had not been substantially performed before completion. No rent was recoverable for the period from 1 January to 30 June 2015. HMRC’s view is that this earlier period is ignored for the NPV calculation because it is not chargeable as rent. The rent taken into account therefore starts from the actual grant date, 1 July 2015, and runs only for the remainder of the term measured from that date.

In the second example, a tenant remains in occupation after the old lease has expired, while a new lease is negotiated. The old rent of £50,000 a year continues to be paid during the holding-over period. A new lease is then granted on 1 July 2016 at £70,000 a year from 1 January 2015. HMRC says the SDLT treatment depends on the facts and on whether the old lease was within the old stamp duty regime or SDLT.

If the old lease was granted under stamp duty, the £50,000 paid during holding over is ignored because it relates to the old lease and is outside SDLT. The extra £20,000 a year may then be treated in one of two ways:

• if it is not for the grant of the new lease, it is treated as a variation of the old stamp duty lease, effectively as a separate grant for 18 months at £20,000 a year, but only if the old lease was granted after 1 January 2000; or
• if it is for the grant of the new lease, the increase for the 18-month backdated period is treated as premium for the new lease, so £30,000 is taxed as premium.

If the old lease was granted under SDLT, SDLT is payable on the NPV of the full £70,000 rent from the backdated start date, with overlap relief available for SDLT already paid on the holding-over lease. The source also notes the filing rule in paragraph 3(3) of Schedule 17A to the Finance Act 2003: a return must be submitted within 30 days of the end of each year of holding over.

What this means in practice

The practical point is that not every amount linked to a pre-grant period is automatically treated as rent under the new lease.

If the lease is simply drafted to start earlier, but no rent is legally recoverable for that earlier period, that earlier period is ignored for the rent calculation. In effect, you calculate the NPV by looking at the rent that is actually chargeable from the date the lease is granted.

That can materially reduce the taxable rent figure. In the first example, although the lease is described as a 5-year lease from 1 January 2015, the relevant term for NPV purposes runs from 1 July 2015 to 31 December 2019, because nothing is chargeable as rent before 1 July 2015.

Where there is holding over, the analysis is more delicate. Continuing payments may belong to the old lease rather than the new one. If so, they may sit outside the SDLT charge on the new lease, especially where the old lease was in the stamp duty regime. But if an increase in payments is really consideration for obtaining the new lease, HMRC may treat that increase as premium rather than rent.

If the old lease itself was already within SDLT, the position is different. The new lease may be charged by reference to the full backdated rent, but relief may be available to prevent double counting where SDLT has already been paid during the holding-over period.

How to analyse it

A sensible way to approach these cases is to ask the following questions.

• On what date was the new lease actually granted?
• From what earlier date, if any, does the lease say it runs?
• Was the lease substantially performed before grant? The first example specifically assumes it was not.
• Was any amount legally recoverable as rent for the pre-grant period?
• If the tenant was holding over, were the payments during that period made under the old lease, or were they really consideration for the new lease?
• Was the old lease in the stamp duty regime or the SDLT regime?
• If there was an increase in rent during holding over, is that increase better characterised as part of a variation of the old lease, or as consideration for the grant of the new lease?
• If the old lease was under SDLT, has SDLT already been accounted for during holding over, so that overlap relief needs to be considered?

The legal character of the payments matters more than the labels used in the documents. A backdated commencement date does not by itself decide the SDLT treatment.

Example

Illustration: a landlord and tenant agree a new lease on 1 October, but the document says the term starts on 1 April. If the tenant does not owe any rent for the period from 1 April to 30 September under the new lease, and the earlier date is used only for commercial alignment, that earlier six-month period is ignored in the NPV calculation.

By contrast, if the tenant stayed in occupation after an earlier lease expired and paid sums during that period, you would need to identify what those sums were for. If they were simply due under the old lease while the tenant held over, that points one way. If an increased amount was agreed as part of securing the new lease, that may point to premium treatment or to inclusion in the SDLT analysis for the new lease, depending on the regime and the facts.

Why this can be difficult in practice

The source itself says that the treatment in the holding-over example depends on the facts. That is important. These cases often turn on characterisation.

The difficult questions usually include:

• whether a payment during the earlier period truly belongs to the old lease or the new lease;
• whether an increased amount is rent, premium, or consideration for a variation;
• how to deal with overlap where the old lease was already within SDLT; and
• whether the documentary position matches the parties’ legal rights and obligations during the period before grant.

Another source of difficulty is that the tax result may differ depending on the age of the old lease and whether it fell under stamp duty or SDLT. That historic distinction still matters in these transitional situations.

The examples also do not lay down a universal rule for all backdated leases. They illustrate specific outcomes based on specific facts. Care is needed before applying them to a different arrangement.

Key takeaways

• A lease that is expressed to start earlier does not automatically bring the whole earlier period into the SDLT rent calculation.
• If no rent is chargeable for the pre-grant period, that period can be ignored for NPV purposes.
• In holding-over cases, the tax treatment depends on what the payments are really for, and on whether the old lease was under stamp duty or SDLT.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Examples of Rent Payable Before Lease Grant and Tax Implications

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