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HMRC internal manual

Stamp Duty Land Tax Manual

Miscellaneous Provisions: Substantial performance of an agreement


An agreement for lease does not give rise to a charge to stamp duty land tax unless the agreement is substantially performed before the lease is granted. Refer to SDLTM07850 to SDLTM07950 for what is meant by substantial performance.

Under FA03/SCH17A/PARA12A, where an agreement for lease is substantially performed in advance of completion, it is treated as the grant of a notional lease. The effective date is the date of substantial performance and the term is from and including that date to the end date specified in the agreement. Where it is not possible to identify the end date of the term (for example a term may be expressed to be a number of years from the date that a building is certified as being ready for occupation) the notional lease is treated as being for an indefinite term (refer to SDLTM14050). A land transaction return may be required in respect of the notional lease together with payment of any tax due within 30 days of the effective date (see SDLTM00310).

When a lease pursuant to the agreement is granted, the transaction is regarded as the surrender of the notional lease and a re-grant. Relief is available in respect of the rent payable in the overlap period (FA03/SCH17A/PARA9; refer to SDLTM16010).

The surrender of the notional lease does not count as chargeable consideration for the re- grant and vice-versa (refer to SDLTM11060).

A further land transaction may be required in respect of the grant of the lease, within 30 days of it being completed. If the effect of applying the relief in respect of the overlap period is to reduce the taxable rent under the lease to nil, no land transaction return is required.

From 19 July 2006, the agreement for lease and the lease executed pursuant to it are not linked transactions for the purposes of the successive linked leases provisions under FA03/SCH17A/PARA5 (FA06/SCH25/PARA4). Linking under FA03/SCH5 still needs to be considered in these cases, as outlined at SDLTM17035.

In cases where a premium is payable, the premium is only subject to tax once. It is a question of fact whether the premium was paid as consideration for entering into the agreement or as consideration for the lease being granted. The purchaser must report the transaction accordingly.

In the event that the transaction envisaged in the agreement for lease is rescinded, annulled or not carried into effect, the tax paid on the agreement may be reclaimed by making an amendment to the land transaction return in respect of the agreement.