Understanding Stamp Duty on Reversionary Leases: Effective Dates and Tax Implications

SDLT on Reversionary Leases

A reversionary lease is a lease granted now but starting later. For SDLT, the effective date is usually the date the lease is granted, so filing, payment, rates and reliefs are based on that date. However, when working out the net present value of the rent, the calculation starts from the date the lease term begins, not the earlier grant date.

• SDLT usually treats a reversionary lease as effective when it is granted, even if the tenant’s term starts in the future.
• The grant date decides when any SDLT return is due and which tax rates, thresholds and exemptions apply.
• The rent is valued differently: for net present value, discounting starts from the lease commencement date.
• A reversionary lease is not the same as an agreement to grant a lease later, and the distinction can change the SDLT treatment.
• In practice, parties should check SDLT as soon as the lease is granted, because a future start date does not usually delay the SDLT position.

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SDLT and reversionary leases: when tax is triggered and how rent is valued

This page explains how SDLT works when a lease is granted now but does not begin until a later date. That kind of lease is called a reversionary lease. The key point is that SDLT generally treats the transaction as taking effect when the lease is granted, even though the tenant’s term does not start until later. That affects when any return is due, which SDLT rules apply, and how the rent is valued for tax.

What this rule is about

A reversionary lease is a lease whose term starts after the date it is granted. In other words, the parties enter into the lease now, but the lease term itself begins in the future.

This matters because SDLT needs an effective date for the transaction. The effective date is important for several reasons:

• it determines when any SDLT return must be filed and when tax is due;
• it determines which SDLT rates, thresholds and exemptions apply;
• it affects how the rent is brought into the net present value calculation.

The official material draws an important distinction between a reversionary lease and an agreement now to grant a lease later. Those are not treated in the same way.

What the official source says

HMRC’s manual says that where a lease is reversionary, the effective date for SDLT is the date of grant, not the later date when the lease term starts.

That means the SDLT position is fixed by reference to the date the lease is granted. The thresholds, tax rates and any exemptions are those in force on that date.

However, for the purpose of calculating the net present value of the rent, the start date of the lease term is used. The manual links this to the legislation on discounting rent to net present value. The reasoning is that the lease is legally effective when granted, but the rent-bearing term does not begin until the future commencement date.

The manual also makes clear that this is different from an agreement to grant a lease in the future. A reversionary lease is an actual lease granted now; an agreement to grant a lease later is a different kind of arrangement and must not be treated as if it were the same thing.

What this means in practice

If a reversionary lease is granted today, you do not wait until the term starts before dealing with SDLT. The transaction is generally notifiable, and any tax is generally due, by reference to the grant date.

So in practice there are two separate timing points to keep in mind:

• for SDLT filing, payment, rates and reliefs, look at the date of grant;
• for discounting the rent to net present value, start from the date the lease term begins.

This can produce results that are easy to miss. For example, a lease may be granted in one tax environment, but the tenant does not actually take possession under the term until years later. SDLT still looks to the earlier grant date for the main charging rules. But the rent is not discounted as though the first rental year began on the grant date if the lease term only starts later.

The practical consequence is that a conveyancer or taxpayer should not assume that “nothing happens yet” merely because occupation or the contractual term starts in the future. If the lease has already been granted, SDLT may already need to be dealt with.

How to analyse it

A sensible way to analyse the transaction is to ask these questions in order:

• Has an actual lease already been granted, or is there only an agreement to grant a lease later?
• If it is an actual lease, does the term begin after the grant date? If so, it is reversionary.
• What is the date of grant? That is the effective date for SDLT purposes.
• What SDLT rates, thresholds and exemptions were in force on that date?
• When does the lease term begin? That is the date used as the starting point for discounting the rent to net present value.
• Does the transaction need to be notified by reference to the grant date?

The main legal distinction is between the lease being legally created now and the lease term beginning later. SDLT respects both facts, but for different purposes.

Example

Suppose a lease is granted on 1 December 2015, but the term runs only from 1 December 2020 to 30 November 2030. The annual rent is £100,000.

On HMRC’s approach, this is a reversionary lease. The SDLT effective date is 1 December 2015, because that is the date of grant. So any SDLT return and any tax due are dealt with by reference to that date, not 1 December 2020.

But when calculating the net present value of the rent, the discounting begins with the first year of the lease term, starting on 1 December 2020. The first year’s rent is therefore discounted as the first year of the term, rather than being discounted repeatedly for the whole gap between grant and commencement.

The manual gives an NPV figure of £831,660 on those facts and explains that the first year’s NPV calculation is based on discounting £100,000 by 3.5% once, not by applying that discount six times from the grant date.

Why this can be difficult in practice

The main difficulty is classification. Documents may be drafted in a way that makes it less obvious whether the parties have already granted a lease or have only agreed to grant one later. That distinction matters because the manual says a reversionary lease is treated differently from an agreement for a future lease.

Another difficulty is that there are two different dates doing different jobs. Readers often expect one date to control everything. Here, that is not the case. The date of grant controls the effective date for SDLT generally, while the commencement date of the term controls the starting point for rent discounting.

There can also be practical timing issues. If the lease starts years later, the parties may overlook the need to consider SDLT immediately on grant. The future start date does not postpone the effective date for a reversionary lease.

Key takeaways

• A reversionary lease is a lease granted now whose term starts later.
• For SDLT, the effective date is the date of grant, so filing, payment, rates and exemptions are judged at that point.
• For net present value of rent, discounting starts from the beginning of the lease term, not from the earlier grant date.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Understanding Stamp Duty on Reversionary Leases: Effective Dates and Tax Implications

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