Market Value Election for Shared Ownership Leases with Staircasing Conditions Explained

SDLT market value election for some shared ownership leases

This rule applies to certain shared ownership leasehold arrangements where the buyer can increase their share over time and reduce the rent, but cannot buy the freehold. If the lease meets strict legal conditions, the buyer may choose to pay SDLT up front on a market value basis instead of using the usual shared ownership rules. The choice must be made correctly in the SDLT return, or by amendment within 12 months, and once made it cannot be undone.

• The lease must allow staircasing by paying a sum to reduce the rent, and it must be granted partly for a premium and partly for rent.
• The premium must be worked out by reference to the open market premium for a comparable lease at the minimum rent, or a figure derived from that premium.
• The lease must state the minimum rent and also state the relevant open market premium or derived figure used to calculate the premium paid.
• The election is made in the SDLT return for the grant of the lease, or by amending that return within 12 months of the filing date.
• The election is only available if both the general shared ownership conditions and these extra lease-specific conditions are met, and it is irrevocable once made.

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SDLT market value election for certain shared ownership leases where staircasing is allowed but the freehold cannot be bought

This page explains a specific SDLT rule for some shared ownership leasehold arrangements. It deals with leases where the buyer can increase their share over time by reducing the rent, but cannot ultimately acquire the freehold. The main point is that, if strict conditions are met, the buyer can choose to pay SDLT up front on a market value basis instead of using the normal shared ownership treatment.

What this rule is about

Shared ownership leases often involve two moving parts. The buyer pays an initial premium for part of the property and then pays rent on the part they do not yet own. Some leases also allow the buyer to acquire further shares later. This is usually called staircasing.

Schedule 9 to Finance Act 2003 contains special SDLT rules for shared ownership. In some cases, the buyer can make a market value election. Broadly, that means SDLT is charged at the outset by reference to a market value figure rather than leaving later staircasing transactions to be taxed under the ordinary shared ownership rules.

The HMRC material here is about a narrower category of lease: one where further shares can be bought, but the buyer is not able to acquire the freehold reversion. For these leases, the market value election is only available if the lease is drafted in a particular way and contains specific statements.

What the official source says

HMRC says that, in addition to the general conditions for a market value election, all of the following must be true for this type of lease.

• The lease must allow the tenant, on paying a sum, to require the lease terms to be changed so that the rent is reduced.
• The lease must be granted partly for rent and partly for a premium.
• That premium must be calculated by reference to either the open market premium for a comparable lease at the minimum rent, or a sum calculated by reference to that premium.
• The lease must state the minimum rent and must also state either the open market premium or the sum calculated by reference to it, being the figure used to calculate the premium actually paid.
• The tenant must elect for SDLT to be charged under paragraph 4 of Schedule 9 to Finance Act 2003 on the minimum rent and the stated open market premium, or the stated sum calculated by reference to it.

HMRC also explains how the election is made. It is made in the SDLT return for the grant of the lease by showing the market value as the consideration. Alternatively, it can be made by amending the return so that the consideration is changed to market value. But if it is made by amendment, that amendment must be made within 12 months of the filing date.

HMRC states that the election is irrevocable. Once made, it cannot later be withdrawn or reversed by a further amendment.

What this means in practice

This is not a general right to choose whichever SDLT basis is more attractive. The election only exists if the lease falls within the statutory framework and the lease wording contains the required machinery and statements.

In practical terms, the lease documents matter a great deal. The buyer and conveyancer need to check whether the lease:

• contains a staircasing mechanism based on paying a sum in return for a reduction in rent, rather than some other structure;
• identifies a minimum rent;
• states the relevant open market premium, or a figure derived from it, used to calculate the premium payable on grant.

If those statements are missing, incomplete, or not tied to the statutory formula, the election may not be available even if the arrangement is commercially similar to shared ownership.

The timing also matters. If the buyer wants market value treatment, that needs to be reflected in the original SDLT return or, if necessary, in an amendment made within the permitted 12-month period. After that, the opportunity is lost.

The fact that the election is irrevocable is also important. Once the return is filed on the market value basis, the buyer cannot later decide that the ordinary treatment would have been better and amend back.

How to analyse it

A sensible way to approach this issue is to work through the following questions.

• Is this a shared ownership lease to which the special Schedule 9 rules can apply at all?
• Does the lease allow further shares to be acquired by paying a sum that reduces the rent?
• Is this one of the cases where the freehold reversion is not available?
• Was the lease granted partly for rent and partly for a premium?
• Is the premium calculated by reference to the open market premium for a comparable lease at the minimum rent, or by reference to a sum derived from that premium?
• Does the lease itself state both the minimum rent and the relevant premium figure or derived figure?
• Were the general conditions for the market value election also satisfied?
• Has the SDLT return actually been completed on the market value basis, or amended in time to do so?

If the answer to any of the lease-condition questions is no, the election may not be available. This is because the HMRC material describes them as conditions that must all be met.

Example

Suppose a buyer is granted a shared ownership lease of a flat. They pay an initial premium for part of the value and pay rent on the unsold share. The lease says that, if they later pay further sums, they can require the lease to be changed so that the rent falls. The lease also states a minimum rent and states the open market premium for a comparable lease at that minimum rent, and the initial premium is calculated by reference to that figure.

If the general conditions for a market value election are also met, the buyer can elect in the SDLT return for SDLT to be charged on the minimum rent and the stated market value figure. If they do not do this in the original return, they may still amend the return within 12 months of the filing date. If they make that election, they cannot later reverse it.

Why this can be difficult in practice

The main difficulty is that this is a document-sensitive rule. Whether the election is available does not depend only on the commercial substance of the arrangement. It also depends on whether the lease contains the precise features and statements required by the legislation as described by HMRC.

Another difficulty is the distinction between the premium actually paid and the open market premium, or a sum derived from it, that must be stated in the lease. Those are not necessarily the same figure. The lease must show the statutory basis on which the premium has been calculated.

There is also a practical risk around SDLT return preparation. If the return is filed on the wrong basis and the 12-month amendment window passes, the election cannot then be made. Conversely, if the election is made, it is final.

Finally, this page must be read alongside the general conditions for market value elections in shared ownership cases. This page adds detailed conditions for a particular type of lease; it does not replace the wider statutory requirements.

Key takeaways

• A market value election for this type of shared ownership lease is only available if both the general conditions and these extra lease-specific conditions are met.
• The lease must contain a staircasing mechanism linked to rent reduction and must state the minimum rent and the relevant market value figure or derived figure.
• The election must be made in the SDLT return for the grant, or by amendment within 12 months of the filing date, and once made it cannot be withdrawn.

This page was last updated on 24 March 2026

Useful article? You may find it helpful to read the original guidance here: Market Value Election for Shared Ownership Leases with Staircasing Conditions Explained

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