Do you have a written agreement for sale and leaseback transaction?

A sale and leaseback can be a practical way for a business to unlock capital tied up in property while continuing to operate from the same premises. For many companies, it is an effective route to raise finance without disrupting day-to-day operations.

But one detail is often underestimated: the importance of having a written agreement in place from the outset.

If your sale and leaseback transaction is not properly documented, the tax consequences, particularly for stamp duty land tax, may be very different from what you expected.

What is a sale and leaseback?

A sale and leaseback arrangement is when a seller transfers a property interest to a buyer, then immediately takes a leaseback on all or part of the same property.

In commercial property, this is often used when a company wants to release cash from a freehold property or leasehold interest while remaining in occupation.

A simple example:

A manufacturing company owns its premises outright. Rather than taking on further borrowing, it agrees to sell the freehold to an investor for £3 million and then lease the building back at market rent. The company receives capital that it can use elsewhere, while continuing to trade from the same location.

This kind of leaseback transaction can make commercial sense, but the legal and tax treatment needs careful handling.

Why the written agreement matters

This is where things become particularly important.

Under HMRC’s guidance in 2026, sale and leaseback transactions are treated as exchange transactions for Stamp Duty Land Tax (SDLT) purposes. This means both the sale leg and the leaseback leg are considered separately. However, sale and leaseback relief may exempt the leaseback element if qualifying conditions are met. HMRC states that the chargeable consideration for the sale leg depends on whether there was a written agreement at the time of the sale for the leaseback being entered into. That distinction can significantly affect the SDLT outcome.

If there is a written agreement:

• HMRC may treat the buyer as acquiring an encumbered freehold or encumbered interest.
• This can reduce the market value attributed to the sale leg.
• The overall stamp duty land tax liability may be lower, depending on the facts.

If there is no such agreement:

• HMRC may assess the transaction based on the unencumbered interest.
• That can increase chargeable consideration.
• The SDLT position may be less favourable.

In practical terms, documentation matters.

When sale and leaseback relief may apply

HMRC’s sale and leaseback relief is not automatic.

The relief generally applies where:

• The sale transaction is wholly or partly in consideration for the leaseback.
• The interest granted back comes from the interest the buyer has acquired.
• The only other consideration is money, or assumption or release of debt.
• Transfer of rights rules do not apply.
• The parties are not in the same group on the effective date for group relief purposes.

This means not every leaseback arrangement will qualify.

A business assuming relief applies without reviewing the structure could face an unexpected tax bill.

A practical example

Imagine a retailer owns a freehold property worth £2 million.

It enters a sale and leaseback with an unconnected buyer, receiving £2 million and agreeing a new lease at market rent.

Scenario one, written agreement in place

The sale and leaseback is clearly documented as a single arrangement before completion. The buyer acquires an encumbered freehold interest because the leaseback element is already agreed.

• This may reduce the relevant market value for the sale leg.

Scenario two, no written agreement

The retailer completes the sale, then later negotiates occupation terms.

HMRC may argue that the buyer acquired the unencumbered freehold property, producing a different Stamp Duty Land Tax outcome.

Same commercial result, potentially very different tax consequences.

Other tax points to consider

Stamp Duty Land Tax is not the only issue. Depending on the structure, a sale and leaseback transaction may also affect:

• Corporation tax.
• Direct tax treatment.
• Capital allowances.
• VAT.
• Accounting treatment.
• Group relief availability.

For example, if the property includes qualifying fixtures, the capital allowances treatment may need to be reviewed before the transfer.

If the seller and buyer are connected, the tax position may be more complex.

If the arrangement involves a leasehold interest rather than freehold, the analysis may differ again.

In Wales, sale and leaseback transactions follow the same broad commercial structure as in England, where a property owner sells the property and leases it back to continue occupying it, but the transaction is governed by Land Transaction Tax (LTT) rather than stamp duty land tax.

LTT relief may be available for qualifying sale and leaseback arrangements; the rules, calculations, and conditions differ from the SDLT framework in England and Northern Ireland. This means that businesses should not assume the same tax treatment applies. Factors such as the structure of the agreement, the value of the property, the lease terms, and whether the transaction is connected to other arrangements can all affect the tax outcome, so specialist tax advice is important before proceeding.

Some sale and leaseback transactions can be very complex, from simple arrangements to intricate structures involving large portfolios, and are commonly used in sectors such as retail and commercial real estate.

Seek professional advice from accountants and tax advisers such as dns accountants.

Common commercial risks

Beyond tax, businesses should also consider the broader agreement terms.

Questions worth asking include:

• Is the rent genuinely at market rent?
• Is there a rent deposit requirement?
• How long are the lease terms?
• Who handles repairs and maintenance?
• Is there flexibility to assign or sublease?
• Does the lease provide enough operational security?.

A sale and leaseback can address a short-term funding issue, but a poorly structured lease can create long-term pressure. That is especially relevant if the business is already facing financial difficulty.

Pros and cons of sale and leaseback

A sale and leaseback can be an attractive option for businesses looking to unlock capital from property without relocating, but it is important to weigh both the benefits and the potential drawbacks before moving ahead.

Pros of sale and leaseback

One of the biggest advantages of a sale and leaseback is improved cash flow. Selling a property and leasing it back allows a business to release capital tied up in the property, which can then be used to raise finance for expansion, repay debt, invest in equipment, or strengthen working capital. This can be particularly useful for businesses that are asset-rich but cash-constrained. HMRC and Welsh Revenue Authority guidance both recognise sale and leaseback as a legitimate commercial structure with specific tax reliefs available in qualifying cases.

Another benefit of sale and leaseback is operational continuity. A business can continue trading from the same premises, meaning there is no disruption to staff, customers, or supply chains. For companies with established trading locations, this can be better than selling a property outright and moving elsewhere.

Sale and leaseback can also offer balance sheet flexibility. Depending on the wider commercial and accounting position, converting a fixed property asset into accessible capital may improve liquidity and support strategic decision-making.

Cons of sale and leaseback

One disadvantage of sale and leaseback is the loss of ownership. Once the sale completes, the business will no longer own the property and will become a tenant. This can reduce long-term control over a key operational asset. Decisions about alterations, expansion, assigning the lease, or even certain uses of the property may require landlord approval.

There is also the issue of long-term affordability. While the upfront capital injection may solve an immediate funding challenge, the business takes on an ongoing rental commitment. If market conditions change or revenue falls, rent payments could become a financial strain, particularly if the business entered the arrangement during a period of financial difficulty.

Tax complexity is also a consideration. While sale and leaseback relief can apply in some circumstances, the tax treatment will depend heavily on how the transaction is structured. For example, whether there is a written agreement, and whether the arrangement meets qualifying conditions. An incorrectly structured transaction could create unexpected Stamp Duty Land Tax or Land Transaction Tax liabilities.

Finally, there is the question of long-term value. If property values rise significantly after the sale, the business will no longer benefit from that appreciation, as the asset has already been transferred to the buyer.

Before proceeding

A sale and leaseback arrangement can be a useful funding strategy, but it should never be treated as merely a simple property sale. Documentation, tax analysis, and commercial terms all matter.

Before entering any leaseback transaction, businesses should ensure:

• The written agreement reflects the intended structure.
• The SDLT implications are properly reviewed.
• Sale and leaseback relief has been assessed.
• Commercial lease terms are workable.
• Tax advice is taken before the exchange.

A small paperwork oversight can become an expensive mistake.

Need advice on sale and leaseback?

If your business is considering a sale and leaseback, dns accountants can help you assess the tax position, review the structure, and support an informed decision before the transaction progresses. Call 03300 88 66 86, or e-mail us at [email protected] for more help and advice.

About the author

Owais Bombaywala
Working closely with individuals and businesses to help grow their business requires a significant amount of experience and industry knowledge. Owais is BA (Hons) Accounting and Finance and Member of ACCA. Besides being a compliance champion, he specialises in Property tax planning. With over 7 years of experience in Accountancy and Tax world, our clients count on us to give them timely and up to date advise to help them make the right move. Owais works closely with some of the DNS’s most valued clients to give them the confidence they need to focus on their business. He is known for his calm nature and proactive approach. At DNS, we proud to be a modern and client centric firm. Our advise doesn’t just look at what’s best for your business moreover our aim is to help you achieve your personal goals. Away from work, he resolve family disputes and provide care and support to elderly people. He is a founding member of Human welfare organisation Hounslow.