The government is reportedly preparing changes to address an unexpected consequence of the Renters’ Rights Act that could leave a large number of tenants facing stamp duty charges simply for remaining in their homes over long periods.
According to reporting by the Financial Times, the current stamp duty land tax (SDLT) framework treats indefinite or rolling tenancies differently from fixed-term agreements, requiring a tax calculation to be made each year.
Under these existing rules, stamp duty liability arises once the total rent paid over time reaches £125,000. From that point onwards, tax becomes payable even though the tenant has not purchased any property.
This creates a potential financial burden for renters who remain in the same home for several years, particularly in high-rent areas such as London and the South East.
The Financial Times illustrated the issue with an example involving a group of students sharing a property in London. If nine students each paid £1,000 per month in rent, their combined annual rent would total £96,000.
Under the current interpretation of the law, this group would become liable for stamp duty after just over one year of occupation, facing a bill of around £573.
This situation is expected to become relevant from May, when assured shorthold tenancies are removed and replaced with periodic tenancies under the new Renters’ Rights legislation.
Once the new system is in place, many tenants who previously held fixed-term agreements will instead move onto rolling contracts, which could technically bring them within the scope of stamp duty rules.
Estimates cited by the Financial Times suggest that approximately 150,000 private renting households could be affected within the next three years. By 2031, that figure could increase to around 250,000 as more tenancies continue without formal renewal.
Stamp duty on rental agreements is charged at 1% of the net present value of rent above the £125,000 threshold.
While the amounts of tax owed in many cases may be relatively small, the wider concern lies in the complexity of the process and the administrative responsibilities placed on tenants.
Renters would need to work out their stamp duty liability each year and submit an official tax return, a requirement that many are unlikely to anticipate or fully understand.
There is also the risk of financial penalties for those who fail to meet the deadlines. A late submission automatically attracts a £100 fine, which increases to £200 if the delay extends beyond three months.
Despite these concerns, it would take several years for most tenants to reach the threshold where stamp duty becomes payable.
Based on current average rents, a typical tenant in London would need to remain in the same property for around six years before their cumulative rent exceeded £125,000.
A government official confirmed to the Financial Times that newly defined periodic tenancies could fall within the scope of stamp duty regulations, but stressed that most private tenants would never reach the point where tax is due.
They also explained that if a tenancy is renewed after renegotiating its terms, the period is treated as starting again, which limits long-term exposure to stamp duty.
The official added that any legal adjustments needed to reflect the new tenancy system would be announced as part of a future Budget statement.
One potential solution currently under consideration would be to delay the requirement to file and pay stamp duty until the amount owed reaches £5,000.
Such a change would restrict liability to tenants in high-value properties and only after many years of continuous occupation, significantly reducing the number of people affected.
A government spokesperson told the Financial Times that the department is aware of the issue and is reviewing the best way to resolve it.
They emphasised that the matter is not an immediate concern for tenants and that no one would face stamp duty charges until their cumulative rent exceeds £125,000.
The spokesperson added that for most renters, reaching that level would take more than seven years of continuous occupation.
Housing and tax experts have warned that without clarification, the rule could create confusion and unnecessary stress for tenants who may be unaware of their potential obligations.
Some concerns
placing additional administrative duties on renters could discourage long-term tenancies and undermine efforts to create greater stability within the private rented sector.
Landlords, too, may face questions from tenants who are unfamiliar with stamp duty on leases and uncertain about their responsibilities under the new system.
As the Renters’ Rights Act moves closer to implementation, pressure is mounting on the government to provide clear guidance and reassurance to both tenants and landlords.
Many in the housing sector argue that the policy must be carefully adjusted to avoid unintended financial consequences for renters who are already dealing with high living costs and rising household bills.
The coming Budget is expected to provide further details on how the government intends to align stamp duty rules with the new tenancy framework.
Until then, uncertainty remains over how many tenants could ultimately be affected and how the rules will be applied in practice.
What is clear is that the interaction between periodic tenancies and stamp duty law has exposed a complex and little-known area of the tax system that now requires urgent attention.
With the private rented sector undergoing major reform, policymakers will need to strike a balance between maintaining tax consistency and ensuring that tenants are not unfairly penalised simply for staying in their homes.
As discussions continue, both renters and industry groups will be watching closely to see whether changes are introduced that remove the risk of stamp duty charges for long-term tenants under the new tenancy model.
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