Shared Ownership Leases: Exemption from Stamp Duty on Freehold Reversion Transfer

SDLT exemption on later freehold transfer in shared ownership after a market value election

Where a buyer of a shared ownership lease makes a valid market value election at the start, any later transfer of the freehold reversion under that arrangement can be exempt from SDLT. This applies even if the freehold transfer is for payment, but the transaction may still need to be reported to HMRC in an SDLT return.

• The rule applies to shared ownership leases covered by the special SDLT rules in Schedule 9 to Finance Act 2003.
• If a valid market value election was made at the outset, and any SDLT due then was paid, a later transfer of the freehold reversion can be exempt from SDLT.
• The exemption can still apply even though the freehold reversion is legally a chargeable interest and even if consideration is given for the transfer.
• The later transfer is still usually notifiable to HMRC, so an SDLT return may be required even when no SDLT is payable.
• If no SDLT was due at the start because the market value was within the 0% band, the buyer still needs to have made the market value election to secure the later exemption.
• In practice, problems often arise where the original election cannot be proved or where it is unclear whether the later transaction is the specific reversion transfer covered by the shared ownership arrangement.

Scroll down for the full analysis.

SDLT on shared ownership: when the later freehold transfer is exempt after a market value election

This page explains a narrow but important SDLT rule for shared ownership leases. It deals with what happens when a buyer has made a market value election at the start of the shared ownership purchase, and later receives the freehold reversion. The key point is that, if the statutory conditions are met, that later transfer of the freehold reversion is exempt from SDLT. But the transfer may still need to be reported to HMRC.

What this rule is about

Shared ownership transactions have their own SDLT rules. In broad terms, a buyer taking a shared ownership lease may be able to choose to pay SDLT by reference to the full market value at the outset, rather than paying SDLT in stages as further interests are acquired.

This page is about the effect of that choice where the structure of the shared ownership arrangement allows the freehold reversion to be transferred to the leaseholder later on. The legal issue is whether that later freehold transfer gives rise to a further SDLT charge.

What the official source says

The HMRC manual says that where:

• a valid election has been made under Schedule 9 paragraph 2 to Finance Act 2003, and
• any SDLT due on that basis has been paid,

the later transfer of the reversion under the lease arrangement is exempt from SDLT under Schedule 9 paragraph 3.

The manual makes two further points:

• the exemption applies even though the transfer of the reversionary interest is, in legal terms, a transfer of a chargeable interest, and even if the transfer is for consideration,
• the transfer must still be notified in an SDLT return.

The manual also highlights an easy point to miss. If no SDLT was actually payable on the initial shared ownership transaction because the market value fell within the 0% SDLT band, the buyer must still make the market value election if they want the later transfer of the reversion to be exempt.

What this means in practice

This rule matters because a shared ownership buyer may later acquire the landlord’s freehold reversion as part of the overall arrangement. Without the specific statutory exemption, that later transfer could potentially be a separate land transaction involving a chargeable interest.

If the buyer made a valid market value election at the start, the legislation treats the later transfer of the freehold reversion more favourably. The later transfer is exempt from SDLT, even though it is still a land transaction in legal terms.

That can avoid a second SDLT charge arising when the freehold reversion is transferred.

However, exempt does not mean invisible. HMRC’s manual says the transfer must still be notified in a land transaction return. So the compliance step remains, even where no SDLT is payable on the later transfer.

How to analyse it

A sensible way to approach this issue is to ask the following questions:

• Is this a shared ownership lease within the special SDLT rules in Schedule 9?
• Was a market value election made under Schedule 9 paragraph 2?
• Was that election valid?
• If SDLT was due on the initial transaction, was it paid?
• Is the later transaction the transfer of the reversion under the lease arrangement?
• Has the later transfer been reported in an SDLT return, as required?

One practical point is especially important: do not assume that “no SDLT was payable at the start” means “no election was needed”. The HMRC manual says the opposite. If the buyer wants the later transfer of the reversion to be exempt, the election still needs to have been made, even where the initial market value produced no SDLT liability because it fell within the 0% threshold.

Example

This is an illustration only. A buyer enters into a qualifying shared ownership lease and chooses market value treatment under Schedule 9 paragraph 2. The full market value at that time is low enough that no SDLT is actually payable. Some years later, under the terms of the shared ownership arrangement, the freehold reversion is transferred to the leaseholder.

On HMRC’s stated view, the later freehold transfer can be exempt under Schedule 9 paragraph 3, but only because a valid market value election was made at the outset. The later transfer must still be notified to HMRC in an SDLT return.

If no valid election had been made at the start, the buyer could not rely on this specific exemption for the later transfer merely because no SDLT had originally been payable.

Why this can be difficult in practice

The rule sounds simple, but several points can cause problems.

First, the exemption depends on a valid market value election. If the election was not made properly, or cannot be evidenced, the later transfer may not qualify for the exemption described in the manual.

Second, the manual refers specifically to the transfer of the reversion under the lease agreement. In practice, it may be necessary to check carefully that the later transaction is in fact the transfer contemplated by the shared ownership structure, rather than some different or additional land transaction.

Third, there is a difference between an exempt transaction and a transaction that does not need to be reported. HMRC’s manual says this later transfer is exempt from charge, but still notifiable. That distinction is important for conveyancing and SDLT filing.

Finally, where no SDLT was payable on the initial grant because the market value was within the 0% band, it is easy to overlook the need for the election. The practical risk is that the omission may only become apparent years later, when the freehold reversion is being transferred.

Key takeaways

• A later transfer of the freehold reversion in a shared ownership arrangement can be exempt from SDLT if a valid market value election was made at the start.
• The exemption applies even though the reversion is a chargeable interest and even if the later transfer is for consideration.
• The later transfer must still be notified to HMRC, and an election may be needed even where no SDLT was payable on the initial transaction.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Shared Ownership Leases: Exemption from Stamp Duty on Freehold Reversion Transfer

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