Tenants across England may soon be liable for stamp duty payments usually reserved for property buyers, due to an unexpected side effect of the upcoming Renters’ Rights Act.
Reform Designed To Protect Renters Risks Creating New Financial Burdens
The Renters’ Rights Act, championed by Labour and set to take effect from May, aims to improve the rights of tenants by abolishing fixed-term tenancies in favour of periodic agreements. These rolling contracts, renewed every 30 days, are expected to become the default across the private rental sector. But what appears to be a structural update in tenant protection could lead to an unforeseen and complex tax issue for hundreds of thousands of households.
Under current tax law, periodic tenancies, more common in commercial leases, trigger Stamp Duty Land Tax (SDLT) if the total value of rent payments surpasses £125,000. This threshold, when exceeded, results in a 1% tax charge on the portion of rent above the limit. With rising rents, especially in London and the South East, more tenants could unknowingly become liable for payments traditionally associated with purchasing a home.
According to The Telegraph, up to 150,000 households could face stamp duty charges within the next three years, with projections reaching 330,000 by 2031, based on analysis by Tax Policy Associates. In high-rent areas like Kensington, tenants may cross the threshold in as little as three years, with stamp duty bills of over £100 emerging for those in shared households.
Legal Oversight Draws Criticism From Industry Experts And Tenants Alike
The revelation has sparked criticism from legal experts and property stakeholders. Dan Neidle, founder of Tax Policy Associates, described the situation as a “ridiculous result” that could require renters to perform “quite a complicated calculation to pay in most cases just a few quid.” The issue lies in the mismatch between residential letting practices and tax rules built for commercial property, where periodic tenancies and related taxes are common.
As scrutiny of the legislation increases, many are questioning how such a clause passed through without deeper legal review.
“Given the breadth of reforms included in the Act, it is unlikely that this will be the last oversight to have real world impacts,” said a spokesperson for the National Residential Landlords Association (NRLA). “We can only hope that the Government acts swiftly to address this, and the other important issues being brought to their attention as implementation nears.”
For now, the government appears to be aware of the issue. A government spokesman said: “The department is aware of the potential issue and we are looking at how best to resolve it. It is not an immediate problem for any tenant. No one will be affected until the rent they are paying is worth more than £125,000, which would take the most tenants more than seven years.”
Still, this reassurance has done little to reduce concerns from renters, many of whom are already struggling with affordability and are unprepared to handle new administrative obligations or unexpected tax bills. The added complexity may further erode trust in a system that was intended to rebalance rights in their favour.
Potential Tax Confusion Highlights Risk Of Policy Gaps In Rental Law Overhaul
The practical application of the stamp duty threshold poses a challenge for both tenants and letting agents. Residential renters are generally unaware of such tax liabilities and are unlikely to monitor their cumulative rent payments. Without clear guidance, many risk inadvertent non-compliance, which could lead to fines ranging from £100 to £300 for late or missed filings with HM Revenue & Customs (HMRC).
Periodic tenancies also raise questions about how liabilities will be calculated, especially in shared accommodation, where total rent is split among several tenants. For instance, if eight housemates in London each pay £1,000 per month, they could cross the £125,000 threshold within a year, triggering a stamp duty charge of £573, as shown in Tax Policy Associates’ examples.
In the absence of reform or exemption clauses for residential periodic contracts, renters could be pushed into an unwieldy tax scenario where the cost of compliance outweighs the actual tax amount due. This would be especially disproportionate in cases where tenants owe sums under £100, requiring them to complete formal returns and payment processes designed for much larger transactions.
The broader issue also touches on whether residential rental laws are being updated in sync with tax policy. As legislative reforms in housing evolve, failure to align them with fiscal frameworks may create ripple effects that undermine their purpose. The Renters’ Rights Act, while intended to reduce insecurity and arbitrariness in renting, risks introducing new legal complexities that neither tenants nor landlords are prepared for
