Stamp Duty on Leasehold Property

When you buy a leasehold property in England or Northern Ireland, Stamp Duty Land Tax (SDLT) works differently from buying a freehold. You may need to pay tax on both the purchase price and the rent you'll pay over the lease term. How much you pay depends on whether you're taking over an existing lease or starting a new one.

Assigned leases (existing leases)

An assigned lease is when you buy an existing lease from someone else. For example, if a developer sells flats on 99-year leases and you later buy one of those flats with 88 years remaining, you're taking on an assigned lease.

When you buy an assigned lease, you pay a lump sum to the seller for the remainder of the lease period. You then pay SDLT on this lump sum using the same rates and thresholds as you would for buying a freehold property.

This means:

• For residential assigned leases, you use the standard residential SDLT rates
• For non-residential assigned leases, you use the standard non-residential rates
• You must complete an SDLT return if the sale price is £40,000 or more, even if no SDLT is due

New leases with a nominal rent

If you're granted a new lease and pay a premium (an upfront payment) but only a nominal rent—such as a peppercorn rent—you only calculate SDLT on the premium. The rent element doesn't come into the calculation.

Calculate the SDLT on the premium in the same way as you would for a freehold property purchase. You must send an SDLT return to HMRC if the sale price is £40,000 or more, even if no tax is due. However, if the lease is for less than 7 years and no tax is due, you don't need to send a return.

New leases with more than a nominal rent

When you pay both a premium and substantial rent, SDLT becomes more complex. You need to calculate tax on:

1. The premium (the upfront payment)

2. The net present value (NPV) of all the rent you'll pay over the lease term

The NPV means the value of future rent payments in today's money. You only pay SDLT on the rent if it's high enough—for example, around £4,500 a year for a 99-year lease would trigger a charge.

New residential leases

For new residential leases, you calculate SDLT on the premium and the rent separately, then add them together.

SDLT on the premium

Calculate this as if you were buying a freehold residential property, regardless of the rent amount. For the 2025/26 tax year, if you pay a premium of £275,000, you would pay:

• 0% on the first £125,000 = £0
• 2% on the next £125,000 (£125,001 to £250,000) = £2,500
• 5% on the remaining £25,000 = £1,250
• Total: £3,750

Different rates applied before 1 April 2025.

SDLT on the rent

If the NPV of the rent exceeds £125,000, you pay SDLT at a flat rate of 1% on the amount above this threshold.

For example, if the NPV of rent is £260,000:

• Amount over the £125,000 threshold = £135,000
• SDLT at 1% = £1,350

Add this £1,350 to the SDLT due on the premium for your total bill.

New non-residential leases

Non-residential property includes commercial premises, agricultural land, forests, and any other land or property that isn't used as a dwelling. If you buy six or more separate properties in one transaction, this also counts as non-residential.

SDLT on the premium

If the annual rent is less than £1,000, you pay SDLT on the premium using standard non-residential rates.

From 17 March 2016, you don't pay SDLT on premiums under £150,000, even when the annual rent is £1,000 or more.

For example, on a premium of £280,000 for office space:

• 0% on the first £150,000 = £0
• 2% on the next £100,000 = £2,000
• 5% on the remaining £30,000 = £1,500
• Total: £3,500

SDLT on the rent

If the NPV of rent exceeds £150,000, you pay SDLT on the rent as well as the premium.

For a non-residential lease with an NPV of £5,100,000:

• 0% on the first £150,000 = £0
• 1% on the next £4,850,000 = £48,500
• 2% on the remaining £100,000 = £2,000
• Total: £50,500

Calculating the NPV

HMRC provides an online SDLT lease transactions calculator to work out the NPV and any SDLT due. You'll need:

• The effective date of the transaction (usually completion date)
• Start and end dates from the lease
• Total premium payable
• Rent payable in each of the first 5 years

For leases longer than 5 years, the calculator uses the highest rent from the first 5 years and assumes this amount continues for the remaining term.

If VAT is payable on the rent, include it in the NPV calculation at 20% (the rate from 4 January 2011 onwards).

When to send an SDLT return

For new leases, you must send an SDLT return to HMRC even if no SDLT is due, unless:

• The lease is for 7 years or more, the premium is less than £40,000 and the annual rent is less than £1,000, or
• The lease is for less than 7 years and you don't pay SDLT on any part of the premium or rent

Scotland and Wales

These rules apply to England and Northern Ireland only. Scotland has used Land and Buildings Transaction Tax since 1 April 2015, and Wales has used Land Transaction Tax since 1 April 2018.

Sources

• Stamp Duty Land Tax on Leasehold sales

This article provides general guidance based on current HMRC rules. For advice specific to your situation, speak to your accountant.