Does granting a long lease over an overseas property avoid the higher rates of SDLT?

Introduction

Buyers often ask whether they can avoid the higher rates of Stamp Duty Land Tax (SDLT) by changing the legal position of another property they already own before they complete a purchase in England. A common example is where the buyer owns a home abroad and wants to grant a long lease to a family member, hoping that this means they no longer count as owning another dwelling for SDLT purposes.

This question matters because the higher rates for additional dwellings can add a substantial amount to the SDLT bill. The issue turns on the wording of Schedule 4ZA to the Finance Act 2003, and in particular whether the buyer still holds a “major interest” in the other dwelling at the effective date of the new purchase.

The Question

A buyer is purchasing a flat in England for £850,000. The buyer also owns a house overseas worth more than £40,000, which is occupied by family members as their home. The buyer is considering granting those family members a formal 30-year lease for a nominal sum before completion of the English purchase.

The buyer wants to know whether, because the overseas property would then be subject to a lease with more than 21 years left to run, the property would stop counting for Condition C in the higher rates rules, so that only the ordinary residential SDLT rates would apply.

Nick’s Explanation

Nick’s explanation was that the governing law is Schedule 4ZA of the Finance Act 2003, not the wording of HMRC’s manuals taken in isolation. He explained that where, at the effective date of the new purchase, a buyer owns a major interest in another dwelling worth at least £40,000, the higher rates apply, and this includes dwellings outside the UK.

In anonymised form, his key point was:

If you own the freehold first and then grant a long lease, you do not stop owning the freehold. You remain the freeholder, and SDLT still treats you as holding a major interest in that dwelling.

He also explained that the narrow exclusion for a reversionary interest is aimed at a different situation: where a person holds only a reversionary freehold subject to a long lease, rather than a freehold owner trying to create that position by granting a lease out of their own title shortly before the new purchase.

His practical conclusion was that simply granting a 30-year lease to family members would not, on his reading, remove the higher rates charge if the buyer still retained the freehold interest in the overseas dwelling.

The Law

The higher rates for additional dwellings are contained in Schedule 4ZA Finance Act 2003.

The basic structure is as follows:

• Paragraph 1 applies the higher rates where the conditions are met.
• Paragraph 3 contains Condition C.
• Paragraph 2(2) defines “major interest”.
• Paragraph 5 confirms that interests in dwellings outside the United Kingdom are taken into account.

In broad terms, Condition C is met if, at the end of the effective date of the new transaction:

• the purchaser has a major interest in another dwelling,
• that interest has a market value of £40,000 or more, and
• that interest is not reversionary on a lease with an unexpired term of more than 21 years.

Under paragraph 2(2), a “major interest” includes a freehold interest or a leasehold interest originally granted for a term of more than 21 years.

Section 55 Finance Act 2003 sets the standard residential SDLT rates. Where Schedule 4ZA applies, those rates are increased by 5 percentage points.

There may also be a separate non-resident surcharge under section 75ZA Finance Act 2003 if the statutory residence test for SDLT non-residence is met.

HMRC’s manuals, including SDLTM09765, can be useful guidance, but they do not override the legislation. If there is a conflict, the statute prevails.

Analysis

The analysis has to start with the legal interest the buyer still holds at the effective date of the English purchase.

1. The buyer already owns the overseas property.

   If that ownership is a freehold or equivalent ownership interest, and the property is worth at least £40,000, the starting point is that the buyer holds a major interest in another dwelling.

2. The fact that the dwelling is abroad does not take it out of account.

   Paragraph 5 of Schedule 4ZA makes clear that overseas dwellings are included.

3. Granting a long lease does not automatically eliminate the buyer’s own interest.

   If the buyer grants a 30-year lease to family members, the leaseholders acquire leasehold rights, but the buyer normally remains the freeholder. The key question then becomes whether the retained freehold is “reversionary on a lease which has an unexpired term of more than 21 years” for Condition C purposes.

4. The buyer’s argument is understandable.

   Looking only at the wording of paragraph 3(4)(c), one might say that after the lease is granted, the buyer’s retained freehold interest is indeed reversionary on a lease with more than 21 years left to run. On that reading, Condition C would not be met.

5. Nick’s explanation adopts a narrower reading of that exclusion.

   His view is that the exclusion is aimed at a true reversionary freehold position, where the person’s interest is already only a reversionary interest of the sort commonly seen in blocks of flats subject to long leases. On that approach, a person who owns and controls the freehold of a dwelling cannot escape the higher rates merely by carving out a long lease to relatives shortly before completion.

6. Why does this matter?

   Because SDLT legislation looks at the legal nature of the interest held at the effective date, and anti-avoidance concerns can strongly influence how arrangements are interpreted where they appear designed only to sidestep the surcharge without changing the underlying ownership in any meaningful way.

7. Occupation by family members and lack of personal benefit are not decisive by themselves.

   The fact that relatives live there as their only or main residence, or that the lease is granted for a nominal premium, does not necessarily mean the buyer ceases to hold a major interest. The legal estate retained still matters.

On the material provided, the safer view is that granting a new long lease over a property you already own does not reliably remove the higher rates charge. The retained freehold interest is likely still to leave the buyer within the additional dwelling rules unless the underlying ownership is genuinely restructured so that the buyer no longer holds the relevant beneficial interest.

If the argument instead concerns whether the dwelling is unsuitable for use as a dwelling, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Minor disrepair, inconvenience, dated condition, or a need for refurbishment will usually not be enough.

Outcome

The practical conclusion is that a buyer who already owns an overseas dwelling is likely still to face the higher rates of SDLT on an English purchase even if, before completion, they grant a 30-year lease of that overseas property to family members and retain the freehold.

On that analysis, the English purchase would still be treated as the purchase of an additional dwelling, so the residential SDLT rates would be increased by 5 percentage points.

Practical Steps

• Identify exactly what legal interest you hold in the other property under the foreign law governing that property.
• Check whether that interest is worth at least £40,000 and whether it is a dwelling for Schedule 4ZA purposes.
• Do not rely solely on HMRC manual wording without checking the legislation itself.
• If you are considering a lease, trust, usufruct, bare ownership, nominee arrangement, or other foreign-law structure, obtain advice from a lawyer qualified in that jurisdiction as well as a UK SDLT specialist.
• Ask for the SDLT position to be tested against the exact foreign-law rights created, not just against English property labels such as “freehold” and “lease”.
• Consider whether the 2% non-resident surcharge under section 75ZA Finance Act 2003 may also apply.
• Keep documentary evidence showing the legal position at the effective date of the English purchase.

Conclusion

If you already own a property abroad, granting a long lease over it to relatives shortly before buying in England is unlikely, on the safer reading of Schedule 4ZA Finance Act 2003, to remove the higher rates of SDLT. The crucial point is whether you still hold a major interest at the effective date, and retaining the freehold will usually mean that you do.

Legal References Used

• Finance Act 2003, section 55
• Finance Act 2003, section 75ZA
• Finance Act 2003, Schedule 4ZA
• Finance Act 2003, Schedule 4ZA paragraph 1
• Finance Act 2003, Schedule 4ZA paragraph 2(2)
• Finance Act 2003, Schedule 4ZA paragraph 3
• Finance Act 2003, Schedule 4ZA paragraph 3(4)
• Finance Act 2003, Schedule 4ZA paragraph 5
• HMRC Stamp Duty Land Tax Manual, SDLTM09765
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

See all questions and answers categorized in this sitemap. Or use Google site search below.