Last updated: 14 October 2026
What are the tax implications of buying a flat in monthly instalments?
If you agree to buy a flat by paying the seller in instalments, SDLT is normally due on the whole price when the contract is “substantially performed”, typically when you move in or start paying most of the price, not as each instalment is paid. Where you rent first with an option to buy, the rent isn’t part of the price unless it’s credited towards it. The seller may pay CGT on the full price in the year of exchange, though they can pay by instalments if the money is received over more than 18 months. Interest added to instalments is taxable income for the seller.
How each tax applies
| Tax | Buyer | Seller |
| SDLT | On the full price at substantial performance | n/a |
| CGT | n/a | On the gain, at exchange; instalment option if paid over 18 months+ |
| Income tax | No relief on interest for a home; 20% credit if a buy-to-let | Interest received is taxable |
| Rental income (rent-to-buy) | n/a | Taxable as property income until sale |
Substantial performance
For SDLT, a contract is substantially performed when the buyer takes possession, or pays 90% or more of the price. If you move into the flat while still paying instalments, SDLT is due within 14 days of moving in, on the full agreed price, even though most of it is unpaid.
Shared ownership is different
Under shared ownership, you buy a share and pay rent on the rest. You can choose to pay SDLT on the full market value upfront (a market value election), or only on the share you buy, with more SDLT due if later staircasing takes you over 80%.
Example
Mia agrees to buy a flat from her landlord for £200,000, paying £20,000 upfront and £2,000 a month for 90 months. She already lives there, so the contract is substantially performed immediately and she must file an SDLT return on £200,000 within 14 days: £1,500 at standard rates, or nothing if she’s a first-time buyer, since the price is within the first-time buyer threshold. Her landlord reports a gain at exchange and can elect to pay the CGT by instalments.
Rent-to-buy schemes
If you rent with an option to buy, the option itself may be a land transaction. If part of the rent is credited to the price, SDLT may apply when the option is exercised, on the full price.
Risks
- If you can’t keep paying, you may lose the instalments paid
- Mortgage lenders may not be involved, so legal protection is vital
- The seller still owns the property until the transfer
Common mistakes
- Paying SDLT only on instalments as they’re made
- Missing the 14-day SDLT deadline after moving in
- Sellers not reporting interest
- No solicitor involved
Records to keep
Keep the contract, payment schedule, SDLT return and completion documents.
Frequently asked questions
Can I get first-time buyer relief?
Yes, if conditions are met and the price is £500,000 or less.
Is the flat mine for IHT?
Not until transfer, though your rights under the contract have value.
Can the seller defer CGT?
By instalments if payments stretch over 18 months.
Do I need a mortgage?
No, but a solicitor is essential.
Related: the SDLT surcharge, uninhabitable properties and SDLT and buying personally or through a company.
Talk to Accotax
Want this handled for you? Our team at Accotax can help with property purchase tax. See our landlord accountants service, or contact us for a free, no-obligation quote.
This page is general guidance based on HMRC rules for the 2026/27 tax year, checked against gov.uk on 14 October 2026. It is not personal advice, so speak to an accountant about your own situation.
