Do rooftop solar leases with peppercorn rent trigger SDLT if electricity is sold at a discount?

Introduction

Businesses installing rooftop solar often use long leases at a peppercorn rent, together with a separate power purchase arrangement under which electricity is sold to the building owner. A common question is whether Stamp Duty Land Tax (SDLT) is still payable even though the lease itself says the rent is nominal or nil.

The difficulty is that SDLT does not only look at labels. If a lease is granted and the landlord receives value in return, HMRC may ask whether that value forms part of the chargeable consideration for the land transaction. In a solar arrangement, the key issue is whether discounted electricity supplied to the building owner could be treated as consideration for the lease, either directly under the SDLT charging rules or by using the anti-avoidance provisions.

The Question

A solar operator proposes to install photovoltaic panels and related equipment on a commercial building. The operator would take a long lease of the roof space, for example 25 years, at a peppercorn rent. There would also be a separate agreement under which:

• some of the electricity generated would be sold to the building owner, and
• the price charged to the building owner would be below the market rate available from an external supplier.

The question is whether SDLT is payable on the lease despite the nominal rent, and in particular whether HMRC could treat the discounted electricity arrangement as rent, a premium, or other chargeable consideration for the lease.

Nick’s Explanation

Nick’s core point was that the answer turns on “consideration” for the lease. In anonymised form, his reasoning was:

“When it comes to tax matters, HMRC often looks at the substance of a transaction rather than just its form. Even if the lease states a peppercorn rent, if other benefits flow between the parties, those benefits may be viewed as part of the consideration for the lease.”

He also noted that if the building owner receives discounted electricity as part of the overall commercial package, HMRC may argue that this is not merely a separate trading arrangement but part of what the landlord receives in return for granting the lease.

Nick further identified the practical uncertainty: there does not appear to be an obvious reported tribunal authority directly on the same rooftop solar model, so the point may require specialist SDLT advice rather than reliance on industry practice alone.

The Law

SDLT is charged on “land transactions” under the Finance Act 2003. The grant of a lease is generally a land transaction because it involves the acquisition of a chargeable interest in land.

For leases, SDLT can arise on:

• any premium or other non-rent consideration, and
• the net present value of the rent payable under the lease.

The key concept is “chargeable consideration”. Broadly, this means money or money’s worth given for the subject matter of the transaction. The legislation is not limited to sums expressly called rent. If something of value is provided in return for the grant of the lease, HMRC may argue that it forms part of the consideration.

Where rents are uncertain or variable, the SDLT return is initially based on a reasonable estimate. For leases in England and Northern Ireland, the rent calculation generally uses the actual rents in the first five years, with the later years calculated by reference to the highest annual rent in those first five years, discounted to net present value. The position may then need to be revisited once the relevant figures are known.

There is also an anti-avoidance rule in section 75A Finance Act 2003. In broad terms, section 75A can apply where a number of connected steps are used and the overall effect is that less SDLT is paid than would be payable on the notional direct transaction. If HMRC considered that the lease and discounted electricity contract were structured separately in a way that understated the true consideration for the land transaction, section 75A could become relevant.

Analysis

The analysis usually works in four stages.

First, is there a land transaction at all? In most rooftop solar lease cases, yes. If the operator is granted leasehold rights over roof space for a term of years, that is normally the grant of a chargeable interest in land.

Second, what does the lease say is payable? If the lease truly provides only for a peppercorn rent and no premium, the starting point is that little or no SDLT may be due on the face of the lease alone. If the net present value of any rent remains below the SDLT threshold, the lease may appear to produce no SDLT liability on ordinary lease rent principles.

Third, is the separate electricity arrangement genuinely separate, or is it part of the price for the lease? This is the real issue. HMRC could ask:

• would the landlord have granted the lease on the same terms without the discounted electricity supply?
• is the discounted supply commercially linked to the lease grant?
• does the landlord receive a measurable economic benefit because electricity is supplied below market price?
• does the overall documentation show that the lease and power agreement are interdependent?

If the answer to those questions points strongly to one integrated bargain, HMRC may argue that the discounted electricity is “money’s worth” given in return for the lease.

Fourth, if the discounted electricity is not directly treated as lease consideration under the ordinary rules, could HMRC invoke section 75A? That would depend on whether the structure is seen as a set of pre-arranged steps producing a lower SDLT outcome than the underlying economic reality. Section 75A is fact-sensitive and should not be assumed to apply automatically, but it is a real risk where value is diverted into side arrangements.

There are also some practical points that matter:

• If the operator has multiple leases with the same seller or in linked arrangements, the linked transaction rules may need to be considered.
• If the rent or other value is uncertain, estimates may be needed initially and reviewed later.
• Different taxes apply in Wales and Scotland, and the lease rules are not identical there.

On the facts described, the strongest argument against SDLT beyond the peppercorn rent would be that the electricity contract is a standalone commercial supply agreement, priced for energy reasons rather than as payment for land rights. The strongest argument for HMRC would be that the landlord is receiving a real economic benefit as part of the package for granting the roof lease.

That means the answer is not simply “peppercorn rent means no SDLT”. The tax treatment depends on the true legal and commercial substance of the arrangement.

Outcome

A rooftop solar lease at a peppercorn rent is still capable of attracting SDLT if the building owner receives other value in return for granting the lease. Discounted electricity supplied under a separate agreement may, depending on the facts and drafting, be treated by HMRC as part of the consideration for the lease or may trigger scrutiny under section 75A Finance Act 2003.

So the practical conclusion is this: a nominal rent clause does not by itself settle the SDLT position. Where the landlord receives discounted power as part of the overall bargain, specialist SDLT analysis is needed.

Practical Steps

To assess the SDLT position properly, a reader should work through the following points:

• Review the lease and the power purchase agreement together, not separately.
• Check whether the documents are conditional on one another or negotiated as one package.
• Identify exactly what economic benefit the building owner receives and whether that benefit can be valued.
• Consider whether any element of the electricity pricing could be characterised as consideration for land rights.
• Check whether the lease grants exclusive possession or more limited rights, as that may affect the land analysis.
• Calculate the SDLT position on the lease rent in the ordinary way, including any variable or uncertain rent rules.
• Consider linked transaction issues if there are multiple leases with the same counterparty or connected arrangements.
• Consider section 75A risk if the structure separates land rights from value flowing to the landlord.
• Obtain specialist SDLT advice if the arrangement is intended to be rolled out across a portfolio.

Conclusion

If a rooftop solar lease is granted for a peppercorn rent, SDLT may still be in point if the landlord receives discounted electricity or other economic value as part of the overall deal. The correct question is not just what the lease calls the rent, but what consideration is really being given for the grant of the lease.

Legal References Used

• Finance Act 2003
• Finance Act 2003, section 75A
• HMRC Stamp Duty Land Tax Manual, including SDLTM00280

This page was last updated on 22 March 2026.

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