Stamp Duty Land Tax on lease extensions

posted on 10.01.2017 by Peter Scholl

In 2016 HMRC issued some guidance as to the application of higher rates of Stamp Duty Land Tax including on lease extensions. It confirmed that the surcharge will apply to the grant of a new lease or lease extension if the following conditions are satisfied:

  • the new lease has a term of more than seven years;
  • the price is £40,000 or more;
  • at the end of the date of the grant of the new lease, the buyer has a “major interest” in another dwelling (other than that to which the new lease relates) and that interest has a market value of £40,000 or more and that interest is not itself subject to a lease with an unexpired term of more than 21 years;
  • the dwelling to which the new lease relates is not a replacement for the buyer’s only or main residence.

That position is reiterated in HMRC’s internal manual.

However the Budget of 22 November 2017 introduced a relief applicable to leasehold home owners extending their leases or “stair-casing” co-owned leases after that date. In those cases the higher rates of SDLT will not apply on the strict and limited conditions that:

  • the dwelling in question has been the only or main residence of the buyer of the lease for the whole of the 3 year period which precedes the date of the transaction;,
  • in the case of a lease extension, the existing lease has 21 years or more to run;
  • in the case of a joint tenant, the purchaser is beneficially entitled to 25% or more of the existing interest;
  • in the case of tenants in common, or someone who shares equally with others in an undivided share, the purchaser is beneficially entitled to 25% or more of the existing interest.

If these conditions are not fulfilled then the higher rates of SDLT (surcharge) will apply to the transaction.

Home buyers who take over the lease extension process from their sellers could be caught by the higher rates if they own another property when they complete that process.

Where many leaseholders in a block of flats plan to extend their leases careful consideration should be given to whether it is possible and beneficial first to acquire the freehold of the block under the 1993 legislation.

Note: information is as at 27/04/2018 but liable to change. Take legal advice before proceeding with any transaction. No liability is accepted by this practice for this information or arising from the application of this information to any transaction.