Stamp Duty Land Tax (SDLT) is a key consideration in any property transaction, including lease arrangements. While the rules around SDLT are generally well-understood for the grant of a new lease, there’s often confusion about whether SDLT applies when a lease is renewed. This article explains when SDLT is payable on lease renewals, how it is calculated, and what tenants and landlords need to be aware of.

What Is a Lease Renewal?

A lease renewal typically refers to the grant of a new lease to replace an expiring one, often with similar terms and involving the same parties. Renewals can be:

• Statutory renewals, under the Landlord and Tenant Act 1954 (for business leases),
• Contractual renewals, agreed between the parties outside of statutory procedures.

Regardless of how the renewal occurs, the new lease is treated as a new grant for SDLT purposes, which can trigger tax liability.

How Is SDLT Calculated?

There are two components of SDLT for leases:

1. Lease premium (if any): Nothing is payable on premiums of up to £150,000.  For anything over that, the next £100,000 (the portion from £150,001 to £250,000) is charged at 1% and the remaining amount (the portion above £250,000) is charged at 2%.
2. Rent (NPV): SDLT is charged on the net present value (NPV) of rent over the life of the lease, using a specific formula.

Again, the current nil-rate threshold for non-residential or mixed leases is £150,000.  If the NPV exceeds this, SDLT is chargeable on the excess of up to £5 million at 1% and any NPV exceeding £2 million at 2%.

If the chargeable consideration includes both rent and non-rent consideration, he SDLT on each element is calculated separately and aggregated. 

Linked Transactions

If the lease renewal is linked to the original lease — for example, granted to the same tenant and for the same premises — HMRC may treat the leases as connected, affecting the NPV calculation. This could increase the SDLT liability, especially if the earlier lease had low or no SDLT due to shorter term or lower rent.

Key Compliance Obligations

Even if no SDLT is payable, an SDLT Return still needs to be filed in certain cases, particularly where:

• The lease term is over 7 years,
• There’s a premium involved.

Returns must be filed (and any SDLT that is payable paid) within 14 days of the effective date of the transaction (usually the date of completion).

Reversionary Lease Renewals

Timing is important to bear in mind in the case of “reversionary” lease renewals.  A ‘reversionary’ lease is one where the term commences after the date of grant.  The effective date of a reversionary lease for SDLT purposes is the date of grant, not the date the term commences.  So if a lease extension/renewal is agreed during the term of the original lease (with the term of the new lease to commence immediately following expiry of the original lease), the effective date for calculating the deadline for filing the return (and paying the tax) would be the date the renewal lease is granted (completed), not the date on which the term of the new lease starts.  So, the return would need to be filed (and tax paid) within 14 days of completion of the renewal lease, even though the term might not start for several months.

Holding Over

One other point to be aware of is potential liability for SDLT during any periods of “holding over” (where there is a gap between the expiry of the original lease and the grant of a renewal lease, with the tenant remaining in occupation during that period).  In certain cases, where certain conditions or circumstances apply, SDLT returns may be required, and SDLT may be payable, during the holding over period, as well as when the new lease is granted.

Common Pitfalls

• Assuming no SDLT is due: Many assume renewals are exempt, but, as they are treated as the grant of a new lease, SDLT may be due.
• Incorrectly calculating NPV: Errors here can lead to underpayment or HMRC penalties.
• Missing return deadlines: Even if no tax is due, failure to submit a return on time can result in fines.

Conclusion

Lease renewals can trigger SDLT liability, particularly for longer leases or those with significant rent. It’s important for both landlords and tenants to assess the potential tax implications and meet filing obligations promptly.