Renters' Rights Act May Trigger SDLT Bills for Tenants

The Renters' Rights Act, due to take effect on 1 May 2026, will abolish Section 21 no-fault evictions and convert all new tenancies to indefinite periodic tenancies. While this reform aims to provide greater security for tenants, it creates an unintended consequence: these rolling tenancies could trigger Stamp Duty Land Tax (SDLT) under the "growing lease" rule when cumulative rent exceeds the £125,000 net present value (NPV) threshold. You can estimate SDLT on property purchases using our stamp duty calculator.

This technical quirk in existing tax law was never intended to apply to ordinary residential tenancies, but the removal of fixed-term agreements means hundreds of thousands of long-term tenants could inadvertently become liable for stamp duty on their rental homes.

The issue has been identified by tax experts and acknowledged by the Treasury, which has committed to introducing an exemption before the Act takes effect. However, the mechanics of the growing lease rule and its potential impact deserve closer examination.

Under existing SDLT law, periodic tenancies that continue beyond their initial fixed term are treated as "growing leases." The tenant must calculate the net present value (NPV) of cumulative rent paid over the life of the tenancy. When the NPV crosses £125,000, an SDLT return is required and tax becomes due on the portion of rent exceeding that threshold. See our guide on how stamp duty is calculated for more on NPV calculations.

Currently, this provision affects very few residential tenants because most have fixed-term agreements (typically six or twelve months) that reset the SDLT clock when they renew. Even tenants who stay in the same property for many years usually sign new fixed-term contracts, creating separate lease periods for tax purposes.

The Renters' Rights Act removes fixed terms entirely for new tenancies from May 2026. All new residential tenancies will be periodic from day one, running month-to-month indefinitely until either party ends the agreement. This means the SDLT clock never resets. Every month of rent adds to the cumulative NPV calculation.

The NPV calculation discounts future rent payments at 3.5% per year, meaning higher monthly rents reach the threshold faster. For a tenant paying £2,000 per month, the threshold is reached after approximately 5.5 years of continuous occupancy.

Analysis by the Oxford University Centre for Business Taxation estimates that approximately 150,000 tenants could be affected within the first three years of the Act taking effect, rising to 250,000 by 2031. The impact is concentrated among tenants in high-rent areas, particularly London and the South East.

The table below shows how long it takes for different monthly rent levels to trigger the £125,000 NPV threshold, along with estimated SDLT bills:

Tenants paying below approximately £1,700 per month are unlikely to ever reach the threshold during a typical rental period. Those paying £1,700–£2,500 per month would hit the threshold after 5–7 years of continuous occupancy. Tenants in the highest rent brackets (£3,000+ per month) could face SDLT liability within 3–4 years.

The average London tenant hitting the £125,000 NPV threshold (typically after approximately 6 years of continuous tenancy) would face an SDLT bill of around £70. While individual bills are relatively modest, the administrative burden of filing an SDLT return is significant.

Many tenants will be entirely unaware of this obligation. Unlike landlords who follow our stamp duty guide for landlords when acquiring rental properties, residential tenants have never had to engage with the stamp duty system. The requirement to self-assess, calculate NPV using the 3.5% discount rate, and file online within 14 days of crossing the threshold creates a compliance burden disproportionate to the tax owed.

There is also a risk of inadvertent non-compliance. Tenants who are unaware of the rule may continue their tenancies for many years without filing, accumulating penalty charges that far exceed the underlying tax liability. HMRC's automatic penalty regime starts at £100 for returns filed up to three months late, rising to £200 for returns more than three months overdue, plus daily penalties of £10 per day thereafter.

The complexity is compounded if tenants move house frequently. Each new tenancy resets the clock, but if a tenant returns to a previous property under a new periodic tenancy, they must track multiple separate lease periods for SDLT purposes.

The government acknowledged this unintended consequence in January 2026 following analysis published by the Oxford University Centre for Business Taxation and reporting by Property118 and the Financial Times. A Treasury spokesperson confirmed that the government is committed to exempting private residential rental tenancies from the growing lease SDLT charge before the Renters' Rights Act takes effect on 1 May 2026.

Draft legislation is expected to be introduced in the spring 2026 Finance Bill. The exemption is likely to apply specifically to assured shorthold tenancies and their successors under the new Act, ensuring that residential tenants are not inadvertently brought into the SDLT net through the abolition of fixed-term agreements. Landlords with existing buy-to-let stamp duty obligations are unaffected by this change.

It remains to be seen whether the exemption will apply retrospectively to tenancies created between now and the introduction of the legislation, or whether it will only cover tenancies created after the Renters' Rights Act comes into force. Given that the Act converts existing tenancies to periodic terms on renewal, there is a risk that some tenants on current fixed-term leases could fall into the gap if they renew before the exemption is enacted.

Tax experts have welcomed the government's swift response but emphasised the importance of clear drafting to ensure the exemption captures all residential tenancies without creating new loopholes or ambiguities.