Guidance on SDLT Returns for Leases After Substantial Performance Completion

SDLT after substantial performance of an agreement for lease

If a tenant substantially performs an agreement for lease before the formal lease is granted, SDLT may arise at that earlier stage on a notional lease and may need to be reviewed again when the actual lease is completed. The key issue is the date the formal lease is granted, because different rules apply before and from 17 July 2013.

• Substantial performance, such as taking possession or starting to pay rent, can be treated for SDLT purposes as if a lease has already been granted.
• If the actual lease is granted on or after 17 July 2013, the notional lease and actual lease are treated as one lease from the date of substantial performance.
• Under the post-17 July 2013 rules, a further SDLT return is only needed if the final lease terms mean more tax is due; if no extra tax is due, HMRC says no further notification is required.
• If the actual lease was granted before 17 July 2013, it is treated as a separate but linked transaction, and overlap relief may prevent the same value being taxed twice.
• Before 17 July 2013, overlap relief cannot create a refund if the tax on the actual lease is lower than the tax already paid on substantial performance.
• The practical steps are to confirm whether substantial performance happened, check whether the notional lease was notified, identify the grant date of the actual lease, and then use the correct filing method and deadline.

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SDLT after substantial performance of an agreement for lease

This page explains what happens for SDLT if an agreement for a new lease is substantially performed before the actual lease is formally granted. The key point is that there may be an SDLT filing and payment obligation at the substantial performance stage, and there may be another obligation when the actual lease is later granted. The position depends heavily on when the actual lease is granted, because the rules changed on 17 July 2013.

What this rule is about

Sometimes a tenant starts paying, takes possession, or otherwise substantially performs an agreement for lease before the formal lease document is completed. For SDLT purposes, that substantial performance can be treated as if a lease had already been granted. HMRC refers to this as a notional lease.

The legal issue is what happens when the real lease is later granted under that same agreement. The SDLT treatment is not the same in all cases. The answer depends on whether the actual lease was granted before or on/after 17 July 2013.

This matters because it affects:

• whether there is a further return at all,
• what form that return takes,
• when it must be filed, and
• whether any further SDLT is payable.

What the official source says

HMRC’s manual says that where an agreement for a new lease is substantially performed and then the actual lease is granted, a further return may be needed on completion of the actual lease.

For actual leases granted on or after 17 July 2013:

• the notional lease and the actual lease are treated as a single lease, treated as granted on the date of substantial performance,
• the notional lease and actual lease are regarded as linked transactions,
• a further return is required on grant of the actual lease if more tax is due,
• if no extra tax is due, notification is not required,
• the lessee under the actual lease is liable for any additional tax,
• if the notional lease was already notified, the further return is made by letter within 30 days of the effective date of the actual transaction, including the original UTRN, the revised calculation, and payment of the extra tax,
• if the notional lease was not notified, and the grant of the actual lease means tax is now due, an SDLT1 must be filed within 14 days of the effective date of the actual transaction.

For actual leases granted before 17 July 2013:

• the actual grant is treated as a separate transaction, although linked to the notional transaction,
• overlap relief is available,
• the further return is made by a new SDLT1, not by letter,
• if the net present value is nil because of overlap relief, no notification is required,
• overlap relief cannot create a negative figure, so it cannot produce a refund where the SDLT on the actual lease would otherwise be less than the SDLT already paid on substantial performance.

What this means in practice

The practical starting point is to separate two stages:

• stage 1: the agreement for lease is substantially performed, creating a notional lease for SDLT purposes, and
• stage 2: the formal lease is later granted.

You then ask when stage 2 happened.

If the actual lease was granted on or after 17 July 2013, the law no longer treats the actual grant as a wholly separate lease transaction in the same way. Instead, the notional and actual lease are effectively brought together and treated as one lease from the substantial performance date. In practice, this means you revisit the SDLT position when the real lease is granted and ask whether the final lease terms produce more tax than was previously accounted for.

If they do, a further return and payment are needed. If they do not, HMRC says no notification is required.

If the actual lease was granted before 17 July 2013, the actual lease is treated as a separate transaction, though linked with the earlier notional lease. In that older regime, overlap relief prevents the same lease value being taxed twice. But that relief only prevents double counting. It does not create a repayment just because the later calculation is lower than the earlier one.

How to analyse it

A sensible way to work through the issue is as follows.

1. Identify whether there was substantial performance of an agreement for lease before the formal lease was granted.
2. Check whether an SDLT return was filed for the notional lease at that earlier stage.
3. Identify the date the actual lease was granted.
4. Apply the correct regime:
   • actual lease granted on or after 17 July 2013, or
   • actual lease granted before 17 July 2013.
5. Recalculate the SDLT position by reference to the actual lease and compare it with what was already returned and paid.
6. Decide whether any further tax is due.
7. Use the correct filing method and deadline:
   • post-17 July 2013, usually a letter within 30 days if the notional lease was already notified and more tax is due,
   • post-17 July 2013, an SDLT1 within 14 days if the notional lease was not notified and tax becomes due on the actual grant,
   • pre-17 July 2013, a new SDLT1 for the actual lease unless no notification is required because the NPV is nil after overlap relief.

The key practical question is not simply whether the lease has now been granted. It is whether that grant changes the SDLT result and, if so, what filing route applies under the relevant date-based regime.

Example

This is an illustration of the HMRC approach described above.

A tenant enters into an agreement for a new lease and takes possession before the formal lease is completed. That substantial performance is treated as a notional lease for SDLT purposes, and an SDLT return is filed.

Later, the formal lease is granted.

If the formal lease is granted on or after 17 July 2013, the earlier notional lease and the formal lease are treated as a single lease from the date of substantial performance. The tenant must check whether the final lease terms mean more SDLT is due than was paid earlier. If yes, a further return is needed. If not, HMRC says no further notification is required.

If instead the formal lease had been granted before 17 July 2013, it would be treated as a separate but linked transaction. A new SDLT1 would normally be needed, with overlap relief taken into account. But that relief could not produce a repayment if the later calculation came out lower than the earlier tax already paid.

Why this can be difficult in practice

The main difficulty is that the SDLT treatment changes part way through the life of what, commercially, may feel like one lease deal. A person dealing with the file has to identify not just the lease terms, but also the sequence of events and the exact date of the actual grant.

There can also be practical uncertainty where:

• it is not obvious whether substantial performance happened, or when it happened,
• the notional lease was not notified at the earlier stage,
• the final lease terms differ from what was expected when the notional lease was first considered,
• someone assumes that formal completion always requires a fresh SDLT return, when under the post-17 July 2013 rules HMRC says no notification is needed if no extra tax is due,
• someone assumes overlap relief can generate a refund under the pre-17 July 2013 rules, when HMRC says it cannot reduce the figure below nil.

Another point to handle carefully is the status of HMRC’s manual. The manual explains HMRC’s view of how the SDLT rules operate, but the legal effect ultimately comes from the legislation. In most routine cases the manual will be a reliable guide to HMRC practice, but the underlying statutory treatment still matters.

Key takeaways

• If an agreement for lease is substantially performed before the lease is formally granted, SDLT may need to be revisited when the actual lease is granted.
• The treatment changed on 17 July 2013, so the date of the actual lease grant is critical.
• After 17 July 2013, a further return is only required if more tax is due; before that date, the actual lease was treated as a separate linked transaction and overlap relief applied.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Guidance on SDLT Returns for Leases After Substantial Performance Completion

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