Stamp Duty on the grant of a new lease: premium, rent and NPV
When a new lease is granted, Stamp Duty Land Tax (SDLT) can be charged twice over: once on any lump sum paid up front (the premium), and separately on the rent — measured not by a single year's figure but by the net present value (NPV) of every pound of rent due across the whole term. The two charges run on different rules, and a transaction can be reportable to HMRC even when no tax is due at all.
That last point catches people out. In HM Land Registry's 2025 Price Paid data for England there were 723,887 residential sales, of which 157,270 (21.7%) were leasehold and 6,200 were new-build leasehold flats — the closest proxy for a newly granted long lease (figures retrieved 11 July 2026). Every one of those grants had to clear the notification test below, whatever the eventual bill.
The two-part charge
The grant of a lease is treated as two chargeable elements under HMRC's SDLT rules:
- The premium — any capital sum (or other consideration) paid for the lease. This is charged at the ordinary residential SDLT slab rates: 0% up to £125,000, 2% from £125,001 to £250,000, 5% from £250,001 to £925,000, and so on (HMRC, 2026).
- The rent — charged on its net present value under Schedule 5 to the Finance Act 2003, at 0% on the first £125,000 of NPV and 1% on the slice above that (for residential leases).
The two are worked out independently and added together. A resale flat bought on an existing lease (an assignment) is different again: there the buyer pays SDLT only on the price, because the rent was already assessed when the lease was first granted.
When you must tell HMRC — the notification test
A grant does not have to produce tax to be reportable. Under sections 76, 77 and 77A of the Finance Act 2003, the grant of a lease for a term of seven years or more is notifiable — a return must be filed within 14 days of the effective date (the deadline shortened from 30 to 14 days on 1 March 2019) — unless both of the following are true:
| Lease term | Premium (non-rent consideration) | Annual rent | Land transaction return required? |
|---|---|---|---|
| 7 years or more | £40,000 or more | any | Yes |
| 7 years or more | any | £1,000 or more | Yes |
| 7 years or more | under £40,000 | under £1,000 | No |
| Under 7 years | — | — | Only if SDLT is actually payable |
So the £40,000 premium line and the £1,000 rent line are either/or triggers: cross either one and a return is due, even if the calculation lands on £0. This mirrors the £40,000 filing trap that applies to freehold transfers of equity, where a return is due at £0 tax — the same £40,000 figure, doing the same job on a different transaction.
How rent becomes a number: net present value
Rent is not taxed on the headline annual figure. It is discounted to today's money at a temporal discount rate of 3.5% a year (Schedule 5, FA 2003), so a pound of rent due in year 10 counts for less than a pound due next year. For a lease running beyond five years, the rent for later years is assumed to equal the highest rent payable in any 12-month period of the first five years — future review uncertainty is ignored.
The practical effect for typical residential rents is that the rent charge stays small, and often nil. Worked at a flat rent with no premium (residential bands, retrieved 11 July 2026):
| Annual rent | Term | Net present value (approx.) | SDLT on the rent |
|---|---|---|---|
| £12,000 | 7 years | £73,400 | £0 |
| £15,000 | 10 years | £124,700 | £0 |
| £12,000 | 15 years | £138,200 | £132 |
| £12,000 | 25 years | £197,800 | £728 |
| £30,000 | 10 years | £249,500 | £1,245 |
A 10-year lease at £15,000 a year has an NPV of about £124,700 — just under the £125,000 nil-rate band — so no tax is due on the rent. But because the annual rent clears £1,000 and the term is over seven years, the grant is still notifiable: a nil bill, a filed return. Only once NPV passes £125,000 does the 1% charge bite, and even a 25-year lease at £12,000 a year produces just £728.
Ground rents, peppercorns and new-build flats
Most new long residential leases now carry little or no ground rent. The Leasehold Reform (Ground Rent) Act 2022 restricted ground rent on most new residential long leases to a token "peppercorn" (effectively zero) from 30 June 2022. Where the rent is a peppercorn, its NPV is negligible, so on a modern new-build flat the SDLT is driven almost entirely by the premium — the price paid.
At the 2025 median new-build leasehold flat price of £400,000 (HM Land Registry, retrieved 11 July 2026), the premium charge is £10,000 — an effective rate of 2.5% — with essentially nothing added for a peppercorn rent. The difference in running costs and tenure between flats and houses and the wider freehold-versus-leasehold picture sit alongside this: SDLT is only the entry cost of a leasehold home, not its lifetime cost.
Based on HM Land Registry Price Paid records and 2026-27 gov.uk data, this is one of a series of pieces explaining property costs across our cost-intelligence guides. To see the all-in monthly cost of leasehold flats in a flat-heavy market, try a city-centre postcode such as Manchester's M1 1AE in the Homecost tool.
This is general information about how the rules work, not advice about any particular transaction. NPV calculations, the notification test and any available reliefs turn on the exact lease terms. Speak to a qualified adviser before acting.