Stamp Duty clarification given to leaseholders

Advice  |   20 January 2017

HMRC has clarified recently that lease extensions are subject to the same changes as residential property purchases.

HMRC has clarified recently that lease extensions are subject to the same changes as residential property purchases. In somewhat of a U-turn in previous thinking, it is now suggested that the higher rate of SDLT will apply if the lease extension premiums is in excess of £40,000 and you are;

  1. an individual owning 2 or more properties anywhere in the world (either in your name or your spouse/civil partner’s name); or
  2. the lease is owned by a company.

In last years’ budget The Chancellor of the Exchequer made sweeping changes to the levels of Stamp Duty Land Tax (SDLT) payable on residential property. Most significant among the changes were the increases in tax payable by people buying second homes or property as an investment. However, at the time, there was some confusion surrounding the changes in relation to leasehold property. It has taken a while but there has been some recent clarification by HMRC of which all leaseholders need to take heed.

As a leaseholder you have the right to extend your lease at any point. However, leasehold properties become less and less valuable as the length of the lease runs down and it can become extremely difficult to buy or sell a property with a short lease. In addition, mortgage lenders are normally reluctant to lend against a property with a lease below 70 years.

We normally recommend extending your lease before it runs down below 85 years, as the premium a freeholder can charge rises much more sharply year on year after that point.

For your reference, a table of the tax payable for lease extensions as of January 2017 is below:

In short, if the lease is owned by a company and your lease extension is valued at over £40,000 you are liable for SDLT at the higher rate. And if a lease is owned by either you or your partner and either of you own another property, either in the UK or anywhere abroad, even if it is your main residence, you too are subject to the higher rate. Also if the lease is held by a partnership then the assets of the partners will be taken into consideration in determining whether SDLT is payable at the higher rate.

Our advice is; the earlier a lease extension is entered into the cheaper the premium. These recent developments bring the need to extend your lease sooner rather than later into sharp focus - the cheaper the premium the lower the chances of needing to pay SDLT at all.

For more information on lease extensions please contact the Leasehold Team on or call us on 020 8290 0440.