Lease Premium Stamp Duty
A lease premium is the lump sum you pay for a lease. SDLT is charged on it exactly like the price of a freehold, and on longer leases you may also pay a small amount on the rent. Here is how it works, with worked examples.
In this article
Key Takeaways
- A lease premium is a lump sum paid to the landlord for the grant or purchase of a lease, separate from the ongoing rent
- SDLT on the premium is worked out exactly as if the premium were the purchase price of a freehold, using the same rates and thresholds
- On a new lease you may also pay SDLT on the rent, charged at 1% on the net present value (NPV) above £125,000 for residential or £150,000 for non-residential
- An assigned (existing) lease is taxed on the assignment lump sum only, with no separate charge on the rent
- Buying a new-build leasehold flat is the most common lease premium: the price you pay is the premium
- First-time buyer relief, the additional property surcharge, and the non-resident surcharge all apply to the premium in the normal way
What Is a Lease Premium?
A lease premium is a lump sum paid to the landlord (or to an outgoing leaseholder) in exchange for the grant or purchase of a lease. It is the capital price of the lease, and it is separate from the rent, which is the ongoing periodic payment. Most people meet a lease premium without realising it: when you buy a new-build leasehold flat, the price you pay the developer is the lease premium.
Premium versus rent
Think of the premium as the price of buying the lease, and the rent (often a small ground rent on a residential flat) as what you pay to keep it. Stamp duty treats the two separately: the premium is taxed like a purchase price, and the rent is taxed only if its long-term value is high.
New Lease vs Assigned Lease
The stamp duty depends on whether you are being granted a brand new lease or buying an existing one:
| Type | What you pay SDLT on |
|---|---|
| New lease (grant) | The premium, plus SDLT on the rent if its net present value is high |
| Assigned lease (existing) | The lump sum you pay for the assignment only, at normal rates, with no separate charge on the rent |
Buying an existing leasehold flat with 88 years left, for example, is an assignment: you pay SDLT on the price like any freehold purchase, and there is no NPV rent calculation because that was already dealt with when the lease was first granted.
When SDLT Also Applies to the Rent
On a new lease, HMRC also looks at the rent, using its net present value (NPV): the total rent over the life of the lease, discounted to today's money. You only pay SDLT on the rent when the NPV is high, which for most residential leases with a small ground rent it is not. Where it does apply, the charge is a flat 1% on the portion of the NPV above the threshold:
- Residential: 1% on the NPV above £125,000
- Non-residential: 1% on the NPV above £150,000, then 2% above £5 million
Any SDLT on the rent is added to the SDLT on the premium. Commercial and long residential leases are where this matters most, so use our lease NPV calculator to work out the rent element, and see the full lease transactions guide for assignments, extensions, and renewals.
Buying soon? Get your stamp duty checked before you commit
A specialist can confirm the right figure and flag any reliefs you qualify for.
Worked Example
You are granted a new residential lease with a premium of £275,000 and a nominal ground rent. The SDLT on the premium is worked out like a freehold purchase price:
| Band | Charge |
|---|---|
| 0% on the first £125,000 | £0 |
| 2% on £125,001 to £250,000 | £2,500 |
| 5% on the remaining £25,000 | £1,250 |
| Total SDLT on the premium | £3,750 |
Because the ground rent is nominal, its NPV is well below £125,000, so there is no SDLT on the rent. The total due is £3,750. If this were a second home, the 5% surcharge would add £13,750, bringing the total to £17,500.
Non-Residential Lease Premiums
A premium for a commercial lease (a shop, office, or warehouse) is taxed at the non-residential rates: 0% up to £150,000, 2% from £150,001 to £250,000, and 5% above £250,000. Since 17 March 2016 the old "£1,000 rule" has been abolished, so a normal commercial rent no longer pushes the premium into charge, and you only pay on the premium if it is above the £150,000 threshold.
Watch the rent on commercial leases
Commercial leases often carry a substantial rent, so the NPV rent charge is far more likely to bite than on a residential flat. Remember to include any VAT on the rent in the NPV. Our mixed-use calculator and commercial property guide cover this in more detail.
When You Must File a Return
For a new lease you must send an SDLT return even if no tax is due, unless the lease is for 7 years or more with a premium under £40,000 and annual rent under £1,000, or the lease is for less than 7 years and no SDLT is due on the premium or the rent. For an assigned lease, you file a return if the price is £40,000 or more, following the same rules as a freehold purchase.
The return and any payment are due within 14 days of completion. See our SDLT filing and payment guide for the process and deadlines.
Common Questions
What is a lease premium?
A lease premium is a lump sum paid to the landlord for the grant or purchase of a lease, separate from the rent. When you buy a new-build leasehold flat, the price you pay is the lease premium.
Do you pay stamp duty on a lease premium?
Yes. SDLT on a lease premium is worked out exactly as if the premium were the sale price of a freehold, using the same rates and thresholds. A £275,000 residential premium attracts £3,750 of SDLT.
Do you pay stamp duty on the rent as well as the premium?
Only on a new lease where the net present value (NPV) of the rent is high. The charge is 1% on the NPV above £125,000 for residential leases or £150,000 for non-residential. Most residential flats with a small ground rent pay nothing on the rent.
Is buying a new-build flat a lease premium?
Usually yes. New-build flats are typically sold on long leases, so the price you pay the developer is the lease premium, taxed at the residential rates.
What is the difference between a new and an assigned lease for stamp duty?
A new lease (a fresh grant) is taxed on the premium and, if high, on the rent NPV. An assigned lease (buying an existing lease) is taxed only on the lump sum you pay, like a normal freehold purchase, with no rent NPV charge.
Reviewed by
Emma Richardson, MRICS
Chartered Surveyor & Property Tax Specialist
Emma Richardson is a RICS-qualified Chartered Surveyor with over 12 years of experience in UK property taxation. She founded Calculate My Stamp Duty UK to help buyers understand the complex world of property transaction taxes.