Written by Charlie Davidson – AKA The Hound of Holborn – Senior Associate Solicitor Residential Property | Bishop & Sewell
A tax trap was quietly laid for ordinary tenants. Not deliberately, one hopes. That would imply a level of coordination that we rarely see in government.
But there it was: sitting in the undergrowth between the Renters’ Rights Act and the SDLT lease rules, waiting for 1 May 2026.
The Renters’ Rights Act 2025 is, in housing terms, a major reform. As of 1 May 2026, assured shorthold tenancies are expected to disappear from the private rented sector in England. Fixed-term ASTs are to give way to continuing assured periodic tenancies. Tenants will no longer sit under the same fixed-term renewal cycle. The model shifts to a tenancy which continues until the tenant brings it to an end.
So far, so housing law. But Stamp Duty Land Tax — SDLT — is rarely content to remain in its own corner.
Most people think of SDLT as something paid when buying a house or flat. That is understandable. In ordinary public conversation, SDLT is the tax that appears on completion statements, deranged budgets, and causes estate agents to discover an unexpected interest in fiscal policy.
But SDLT is also charged on the grant of leases. That includes, in principle, residential tenancies. The rent itself can be chargeable where the net present value of the rent exceeds the relevant threshold.
SDLT is not merely the tax that ambushes buyers on completion day. It also has a quieter cousin: SDLT on rent. Less famous, less understood, and therefore rather more dangerous.
What is NPV, and why does it matter?
The awkward phrase here is net present value, usually shortened to NPV.
For present purposes, NPV means the value today of rent that will be paid in the future. A pound paid today is worth a pound. A pound paid in five years’ time is worth slightly less today, because one has to wait for it. SDLT deals with that by applying a statutory discount rate and converting the future stream of rent into a present-day figure.
That is the theory. The practical point is simpler.
HMRC does not merely ask: “What is the rent this year?” For SDLT on leases, it may ask: “What is the value today of the rent payable over the lease term?”
If that NPV figure crosses the SDLT rent threshold, a tax charge and filing obligation can arise.
One can already see the problem. Ordinary tenants do not think in discounted cash flows. They think in monthly rent, deposits, moving vans, and whether the boiler has again decided to enter a period of constitutional reflection.
Yet the SDLT code thinks in NPV. And the SDLT code, unlike the boiler, is rarely embarrassed by its own behaviour.
Why periodic tenancies created the problem
Historically, SDLT on rent did not trouble the ordinary AST market very much. Most private lettings were granted for a fixed term, commonly six or twelve months. If the parties wanted to continue, they might renew, or the tenancy might continue as a statutory periodic tenancy.
In many higher-value or agent-managed lettings, the commercial habit was renewal: fresh agreement, fresh term, fresh clock.
The SDLT clock, therefore, was often short. The Renters’ Rights Act threatened to change that.
The problem sat in the SDLT lease rules. A periodic tenancy is treated, for SDLT purposes, as a lease for an indefinite term. It starts as a deemed one-year lease. If it continues, it is treated as a two-year lease. Then a three-year lease. Then four. Then five.
The rule is simple in the way traps are often simple. A periodic tenancy starts life, for SDLT purposes, as a deemed one-year lease. If it survives, it grows. One year becomes two. Two becomes three. The lease has not changed in any human sense. But tax law, never knowingly overburdened by human sense, begins counting.
That is why this is often called the “growing lease” rule.
The rule was not new. It was already there. It simply sat quietly because the structure of the residential lettings market usually kept it away from ordinary tenants. The Renters’ Rights Act risked making periodic tenancies the norm, and therefore making the SDLT growing lease rules much more visible.
Or, less politely: the housing reform changed the shape of the tenancy, and the tax code noticed.
The near-miss
The near-miss was this: once ordinary residential tenancies became periodic by design, high-rent or long-running tenancies could have been pulled into a recurring SDLT calculation. That does not mean every tenant would have faced a large tax bill. Most would not. In many cases, the tax would have been small. In some cases, almost comically small.
But small tax does not necessarily mean small trouble.
The mischief was not really the tax. It was the ritual. A modest liability, a technical calculation, a filing obligation, and a penalty regime: the full bureaucratic banquet, served for the price of a disappointing meal deal.
A tenant would need to know that SDLT on rent existed. They would need to understand that their periodic tenancy was treated as a growing lease. They would need to monitor anniversaries. They would need to calculate NPV. They would need to file and pay on time. This is not a realistic compliance model for ordinary residential occupiers. It is the sort of thing one designs if one assumes the average tenant keeps a copy of Schedule 17A to the Finance Act 2003 next to the kettle.
They do not. And one can hardly blame them.
The student house problem
Take the example of a London student house
Eight students share a house. They sign one joint tenancy. Each pays £1,000 a month. That is £8,000 a month in total, or £96,000 a year.
On a one-year fixed term, the SDLT analysis is dull. The NPV of one year’s rent is below the £125,000 rent threshold. No SDLT charge on the rent.
But if the arrangement is treated as a periodic tenancy which grows for SDLT purposes, the calculation changes. On the first anniversary, one is not simply looking at one year. One is looking, in SDLT terms, at a two-year lease. On the next anniversary, three years. Then four. Then five.
The tenancy has not become grander. The students have not acquired a taste for landed estates. The law has simply started counting the same arrangement differently.
Nobody expects eight students to sit around the kitchen table between the cereal boxes and the passive-aggressive washing-up notes, calculating the net present value of their rent. Yet that, in substance, was where the law was taking them.
This was always the absurdity. Not that SDLT on leases exists. It plainly does. Not that high-value arrangements can attract tax. They can. The absurdity was the possibility of dragging ordinary residential lettings into a technical compliance regime that neither tenants nor agents were likely to understand.
The London problem
London rents made the problem more plausible. Joint tenancies made it more plausible. Long-running occupation made it more plausible. Family arrangements at full market rent made it more plausible. Prime and near-prime lettings made it more plausible.
The point was not that every assured tenancy would become an SDLT problem. That would be nonsense. The point was that the old assumption — “ordinary ASTs do not really touch SDLT” — was becoming unsafe.
And unsafe assumptions are the small cracks through which professional risk enters the building.
The professional blind spot
This was a particularly unattractive trap because almost nobody in the ordinary residential letting chain would naturally own the issue.
Tenants would not spot it. Agents would not be expected to run SDLT lease calculations. Landlords would assume SDLT was the tenant’s problem. Many conveyancers would not be involved at all. Private client advisers might see family occupation arrangements, but not necessarily approach them as SDLT lease matters. Residential property lawyers might know SDLT in the context of purchases, but may not routinely think about NPV on short residential tenancies.
And HMRC, with the serene menace of an institution that need not be popular, would still have had a statutory filing and penalty regime available.
The result would have been predictable. Widespread ignorance. Tiny liabilities. Disproportionate compliance. Late filing penalties. Confusion. Then, eventually, complaints.
That is not a tax system. That is a mousetrap with stationery.
What about existing tenancies?
There was also a transitional sting. What of a fixed-term AST granted before 1 May 2026, which then converts into the new periodic assured tenancy regime?
The better view appears to have been that the first relevant calculation might not arise immediately, because the SDLT code has rules dealing with a fixed term that continues by operation of law. But that was not the end of the matter. There was a respectable concern that HMRC could have taken a stricter view in some cases, anchoring the growing lease analysis to the original start date of the tenancy.
That uncertainty matters. Transitional uncertainty is where complaints, penalties and professional negligence allegations breed. The law does not need to be obviously catastrophic to be dangerous. It merely needs to be unclear at scale.
Why “just grant a new tenancy” was not a clean answer
There was an apparently simple answer: grant a new tenancy every year.
That sounds attractive. It also sounds like the sort of thing that tax law may already have considered.
The SDLT code contains rules for successive linked leases. In broad terms, if substantially the same parties enter into successive leases of substantially the same premises, and the arrangements are linked, the law may treat them together rather than as entirely separate islands. The obvious policy reason is to stop a long arrangement being sliced into smaller pieces merely to avoid SDLT.
One cannot simply assume that surrendering and regranting annual tenancies would always be safe. Sometimes the false moustache fools nobody.
The Treasury steps in
On 22 April 2026, the Government published a Written Ministerial Statement on Stamp Duty Land Tax on periodic tenancies. The same statement was made in the Commons and in the Lords.
The Government acknowledged the interaction plainly. From 1 May 2026, the Renters’ Rights Act will abolish fixed-term assured shorthold tenancies. Tenancies will instead be periodic. Following that change, the net present value of rent under a continuing lease would be calculated on the basis of a lease continuing indefinitely. That could cause the NPV to exceed the £125,000 SDLT threshold, even though the underlying tenancy arrangements had not substantively changed.
That is the important point. The Treasury accepted the machinery of the problem. Then, to its credit, the Treasury noticed the rake before too many people stood on it. Or, put another way, the Treasury, having heard the faint metallic sound of policy meeting tax law, stepped in.
The proposed fix
The Government intends to legislate in Finance Bill 2026–27 so that any residential lease which will be considered an assured tenancy under the Housing Act 1988, as amended by the Renters’ Rights Act, will not give rise to an SDLT charge on the rent element.
The legislation is intended to apply retrospectively from the date on which existing tenancies become section 4A assured tenancies, expected to be 1 May 2026. HMRC has stated that it will not seek to collect SDLT on the rent element during the interim period, pending the enactment of the legislation
Retrospection is not something governments offer out of mere politeness. It is usually a sign that the machinery has been inspected and someone has decided it would be best if the public did not see all the moving parts.
The intervention is welcome. It is also revealing.
The issue was not imaginary. It was not a lawyer’s parlour game. It was sufficiently real that the Government has now committed to retrospective legislation and an interim non-collection approach by HMRC.
That is about as close as tax law gets to quietly admitting that someone nearly left a rake in the grass.
What is the SDLT treatment of assured tenancies after 1 May 2026?
On the Government’s stated position, the intended answer is simple. Residential assured tenancies under the post-Renters’ Rights Act regime should not suffer an SDLT charge on the rent element merely because they are periodic.
That should neutralise the specific growing lease exposure for ordinary assured tenancies.
But one should not overstate the point.
A Written Ministerial Statement is useful. It is not, however, an Act of Parliament. Until the Finance Bill receives Royal Assent, the fix remains a promise in formal clothing.
The stated intention is strong. HMRC’s interim position is helpful. The promise of retrospective effect is commercially important. But until Finance Bill 2026–27 is enacted, the profession should describe the position accurately: The Government has announced a legislative fix. It has not yet placed that fix on the statute book.
That distinction may sound cautious. It is. Caution is what property lawyers sell when not otherwise occupied being blamed for everyone else’s timetable.
What advisers should take from this
There are three lessons.
- Housing reform does not remain politely within housing law. Change the legal nature of the tenancy and one may change its tax treatment, its registration consequences, its succession analysis, its lender relevance, and its risk profile. The statute book i
- SDLT on rent remains badly understood in the residential market. Many practitioners rarely encounter it. Many agents will never mention it. Many tenants will assume it is irrelevant. That assumption was almost made dangerous by the Renters’ Rights Act.
- The eventual wording of the Finance Bill matters. The statement is directed at residential leases which will be considered assured tenancies under the Housing Act 1988 as amended. It does not abolish the SDLT lease code. It does not necessarily answer every bespoke, mixed, excluded, high-value, agricultural, succession, corporate, or non-assured arrangement.
Property lawyers live in the joins. Between housing law and tax law. Between title and occupation. Between what Parliament thought it was doing and what the statute actually says. This episode is a reminder that the joins are where the trouble usually waits.
The specific SDLT treatment of assured tenancies from 1 May 2026 may be on its way to being resolved.
The wider lesson remains.
This was a quiet point. No banner. No trumpet. No agent’s memorandum. Just a change in tenancy structure which caused an old SDLT rule to wake up and start asking questions.
The Treasury appears to have put this particular creature back to sleep. Good. But no one should mistake that for a clean bill of health. The next trap may not arrive with a press release, a ministerial statement, or a helpful warning from the tax bar. It may simply sit there, in a schedule, perfectly visible and entirely unnoticed, waiting for another reform to step on it.
Charlie Davidson, The Hound of Holborn, is a Senior Associate in Bishop & Sewell’s Residential Property team.
Email [email protected] or follow him on LinkedIn.
http://www.bishopandsewell.co.uk
Source note: This article draws on the Government’s Written Ministerial Statement of 22 April 2026, HMRC’s SDLT guidance on leases, Schedule 17A to the Finance Act 2003, and the public analysis of the issue by Tax Policy Associates.
The above is accurate as at 21 May 2026. The content of this note should not be considered legal advice, and each matter should be considered on a case-by-case basis.
