Is SDLT payable when a landlord pays a leaseholder to surrender a long residential lease?

Introduction

People often ask whether Stamp Duty Land Tax (SDLT) applies when a freeholder pays a leaseholder to give up a long lease. This commonly arises where a building has been split into flats or maisonettes and the freeholder wants to buy back one leasehold interest so that the freehold and lease can be brought together.

The short answer is that SDLT can apply. A payment by the landlord for the surrender of a long lease is usually treated as chargeable consideration for the acquisition of a chargeable interest in land. Whether tax is actually payable depends on the amount paid, the nature of the property, and whether any higher residential rates apply.

The Question

A freeholder owns a residential building divided into two maisonettes and retains one of them. The other maisonette is held by a long leaseholder who pays ground rent. The leaseholder wishes to dispose of that leasehold interest, and the freeholder is considering paying the leaseholder in return for a surrender of the lease.

The issue is whether SDLT is charged on the payment made by the freeholder for that surrender.

Nick’s Explanation

Nick’s view was that where a landlord pays a leaseholder to surrender a long lease, this will generally be treated as the acquisition of a major interest in land for SDLT purposes.

In anonymised form, his explanation was that:

“When a landlord pays a leaseholder to surrender a long lease, this is typically treated as the acquisition of a major interest in land for SDLT purposes. If the lease being surrendered is for more than seven years and the consideration exceeds the SDLT threshold, SDLT would generally be payable by the landlord on the amount paid.”

He also noted that the transaction is usually treated as chargeable because the landlord is acquiring a greater interest in the property, either by merging the lease into the freehold or by obtaining vacant possession of that part.

He further pointed out that where the chargeable consideration exceeds £40,000, the transaction is generally notifiable to HMRC, and that if the buyer is a company or the purchase falls within the additional dwelling rules, higher residential rates may need to be considered.

The Law

SDLT is charged under the Finance Act 2003 on land transactions involving the acquisition of a chargeable interest for chargeable consideration.

The key points are:

• A lease is a chargeable interest in land.
• The surrender of a lease by the tenant to the landlord can amount to the landlord acquiring that leasehold interest.
• If the landlord gives money or money’s worth for the surrender, that payment is chargeable consideration.
• A major interest in land includes a freehold or a lease originally granted for a term of more than seven years.

Where the lease surrendered is a long lease, the landlord is usually treated as acquiring a major interest. SDLT is then considered by reference to the amount paid for the surrender.

For residential property, the applicable SDLT rates depend on the effective date, the amount of chargeable consideration, and whether any surcharge applies, including the higher rates for additional dwellings. If the purchaser is a company, the corporate rules may also need to be checked carefully.

A transaction is generally notifiable if the chargeable consideration is £40,000 or more, even if no SDLT is ultimately payable because of reliefs or thresholds.

Analysis

The analysis usually works as follows.

1. Identify what is being acquired. The freeholder is not simply making a compensatory payment. In SDLT terms, the freeholder is normally acquiring the leaseholder’s legal interest in the property by surrender.

2. Check whether the lease is a major interest. If the lease was originally granted for more than seven years, it is generally a major interest for SDLT purposes.

3. Identify the chargeable consideration. If the freeholder pays a sum to the leaseholder for the surrender, that payment is usually the chargeable consideration.

4. Apply the residential SDLT rules. If the surrendered lease relates to a dwelling, the residential rates will usually be relevant. The amount of SDLT depends on the amount paid and the rates in force at the effective date.

5. Consider any surcharge. If the freeholder already owns another dwelling and the transaction counts as the acquisition of an additional dwelling interest, the higher rates may apply. If the buyer is a company, the position should be checked particularly carefully because companies often cannot rely on the same replacement rules as individuals.

6. Check notification requirements. If the consideration is £40,000 or more, an SDLT return will usually be required, even where the tax due is nil.

In practical terms, this means that a landlord paying a leaseholder to surrender a long residential lease should usually start from the assumption that SDLT needs to be reviewed and may well be payable.

The fact that the landlord already owns the freehold does not prevent SDLT from arising. SDLT is concerned with the acquisition of a chargeable interest, and here the landlord is acquiring the leasehold interest that previously sat above or alongside the freehold reversion.

If the building is residential and consists of two maisonettes, the part being surrendered is still likely to be treated as a dwelling interest. That points toward the residential SDLT regime rather than the non-residential one, unless the facts are unusual.

If anyone is considering whether the property was uninhabitable or not suitable for use as a dwelling at the effective date, that argument now faces a relatively high threshold following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Ordinary disrepair, dated condition, or the need for works will not usually be enough.

Outcome

Where a freeholder pays a long leaseholder to surrender a residential lease, SDLT will generally need to be considered and is often payable on the amount paid for the surrender.

If the consideration is at least £40,000, the transaction will usually need to be reported to HMRC. If the consideration exceeds the relevant residential thresholds, SDLT may be due. If higher residential rates apply, the tax cost can be greater.

Practical Steps

1. Confirm the original term of the lease. If it was granted for more than seven years, it is likely to be a major interest.

2. Identify the exact amount being paid for the surrender, including any linked consideration or side arrangements.

3. Check whether the property is residential for SDLT purposes.

4. Review whether the buyer is an individual, joint buyers, or a company, as this can affect the rate calculation.

5. Consider whether the higher rates for additional dwellings apply.

6. Check whether the consideration reaches the £40,000 notification threshold.

7. If there is any suggestion that the dwelling was not suitable for use, test that carefully against the current high threshold following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799.

8. Ensure the surrender document and SDLT filing position are consistent and properly recorded.

Conclusion

A payment by a landlord to a leaseholder for the surrender of a long residential lease is usually not just a private settlement. For SDLT purposes, it is generally treated as the acquisition of a chargeable interest in land. In most cases, the landlord should expect to review SDLT liability, file a return if the consideration is £40,000 or more, and calculate tax using the residential rules and any applicable surcharge.

Legal References Used

• Finance Act 2003
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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