Commercial Leasehold SDLT 2026

SDLT on commercial leases is calculated on the Net Present Value of the rent across the term, plus SDLT on any premium. The 3.5% discount rate and the 0/1% NPV bands have been unchanged since 2003.

How SDLT on commercial leases works

For commercial leases where rent is payable, SDLT has two components added together. Component A: SDLT on the Net Present Value (NPV) of the rent over the lease term, using the NPV schedule (0% up to £150,000 NPV, 1% on the slice above). Component B: SDLT on any premium paid to acquire the lease, using the standard non-residential bands (0% to £150k, 2% to £250k, 5% above). Both components apply to all commercial freehold lease grants and to subsequent assignments where consideration is paid for the assignment.

The NPV calculation discounts each future year's rent back to present value using a 3.5% per annum discount rate prescribed by HMRC under SDLTM13075. The first year's rent is taken at full value; the second year is divided by 1.035; the third by 1.035 squared; and so on. The 3.5% rate has been set since SDLT replaced Stamp Duty in 2003 and has not been revised despite the post-2022 interest-rate environment, where the rate is substantially below market discount rates.

HMRC publishes an NPV calculator at GOV.UK leasehold SDLT. Most commercial conveyancers use the official calculator or a third-party tool that mirrors the HMRC formula precisely.

Worked examples: SDLT on commercial leases at common rents and terms

Indicative NPVs only; exact figures depend on rent payment frequency, the discount month convention, and any contractual rent-free periods. Most short-term leases at modest rents fall below the £150,000 NPV threshold and pay zero SDLT on rent.

SDLT on the premium component

If the tenant pays a premium to acquire the lease (e.g. a £200,000 reverse premium paid to the outgoing tenant on a lease assignment, or a £100,000 premium paid to the landlord on a new lease grant), the premium is taxed under the standard non-residential SDLT bands: 0% up to £150,000, 2% to £250,000, 5% above. The premium tax is added to the NPV-on-rent tax to give the total SDLT charge.

Example: a 10-year retail lease at £50,000 per year with a £200,000 premium paid to the landlord. The NPV-on-rent SDLT is £2,650 (from the table above). The premium SDLT is £1,000 (2% on £50,000 above the £150,000 nil-rate threshold). Total SDLT: £3,650. Both components are filed on the same SDLT return.

Premiums are taxed even where the rent is zero or peppercorn. A long ground lease for a peppercorn rent with a large up-front premium (a common structure for freehold-by-the-back-door sales) attracts SDLT only on the premium, at the standard non-residential rates.

Rent reviews, rent-free periods, and break clauses

The NPV calculation uses the rent payable as set out in the lease at completion. Standard upward-only rent reviews (typically every 5 years to open market value) are not anticipated in the NPV at completion; the initial calculation uses the rent payable at grant. If the rent subsequently rises through a review, the NPV does not change retrospectively. The exception is HMRC's SDLTM13070 abnormal-increase rules: if the rent rises by more than 5% above market in any 5-year period, HMRC can recalculate SDLT on the increased portion as a separate notional grant.

Rent-free periods at the start of the lease are simply excluded from the NPV. A 10-year lease at £60,000 per year with the first 6 months rent-free has the same NPV as a 9.5-year lease at £60,000 starting at month 7. Contractual incentives like fit-out contributions paid by the landlord are not deducted from the SDLT base; they are separately taxable as income to the tenant under corporation-tax or income-tax rules.

Break clauses do not reduce the NPV at completion. The full term of the lease is used in the NPV calculation regardless of when the tenant might exercise a break. If the tenant subsequently breaks before the full term, no SDLT refund is available, because the SDLT charge crystallised at completion based on the lease terms then in force.

Filing, deadlines, and the £40,000 notification threshold

The SDLT return is filed within 14 days of the effective date of the lease (normally completion). Even where no SDLT is payable because the NPV falls below £150,000 and there is no premium, the lease must be notified to HMRC if the NPV exceeds £40,000 or any premium is paid. Failure to file attracts a £100 fixed penalty (rising to £200 after 3 months), plus daily interest on unpaid tax under paragraph 23 of Schedule 10 FA 2003.

For VAT-elected commercial property, the VAT charged on the rent is excluded from the NPV calculation (the NPV uses the VAT-exclusive rent figure). If the property is later opted out of VAT, no SDLT refund or recalculation arises.

For assignments of existing leases (not new grants), SDLT applies only to any premium paid for the assignment, not to the NPV of remaining rent (which has already been accounted for in the original tenant's SDLT). An assignment with no premium and no consideration generates no SDLT and no filing requirement, even where the assigning lease has a high original NPV.

Residential leasehold SDLT differs significantly

This page covers commercial leasehold SDLT. Residential leasehold (typically a flat lease) is taxed differently: the lease grant is taxed on the premium under the standard residential SDLT bands (0/2/5/10/12%), with rent treated under a separate residential rent-NPV schedule using a £125,000 NPV nil-rate. Most flat purchases in 2026 involve a lease assignment with a small annual ground rent and a substantial premium, so SDLT is dominated by the premium component using residential bands.

For purchases of a freehold residential dwelling (no leasehold element), see the standard UK rate tables. For shared-ownership leases, see shared-ownership SDLT.

Frequently Asked Questions

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