Is SDLT payable when you buy a reversionary interest subject to a lease with more than 21 years left?

Introduction

People often ask whether Stamp Duty Land Tax (SDLT) is due when they are buying an interest in property that is already subject to a long lease. A common example is where the buyer is acquiring a reversionary interest, rather than taking the lease itself. The key issue is whether the transaction falls within the exemption for a reversion expectant on the end of a lease with more than 21 years left to run.

This matters because the SDLT return asks whether the property is subject to a lease of more than 21 years on the effective date, and the correct answer depends on the legal nature of what is being acquired. If the buyer is only acquiring the reversion, and the existing lease has more than 21 years unexpired, the transaction may be exempt.

The Question

A buyer is purchasing a life tenancy interest in a property that is already subject to an existing long lease of around 90 years. The buyer understands that, on completion, they will acquire the reversionary interest rather than the leasehold interest itself. The question is whether the buyer can claim the SDLT exemption that applies where the subject matter of the transaction is a reversion expectant on the termination of a lease with more than 21 years unexpired at the effective date.

The buyer also wants to know whether any complications arise if advisers have raised concerns about the structure, even though the basic arrangement appears to be a straightforward purchase of the reversion only.

Nick’s Explanation

Nick’s view was that the starting point is to identify exactly what chargeable interest is being acquired. In anonymised form, his explanation was:

“You are purchasing an interest in a property that is subject to an existing 90-year lease. On completion, you will be acquiring the reversionary interest, not the leasehold interest. Paragraph 3 of Schedule 3 to the Finance Act 2003 exempts a land transaction where the subject matter is a reversion expectant on the termination of a lease, and at the effective date of the transaction the unexpired term of that lease exceeds 21 years.”

He also explained that the exemption applies provided three points are satisfied:

• the buyer is acquiring the reversionary interest only;
• the lease genuinely has more than 21 years left to run at the effective date; and
• the transaction is not linked to the acquisition of the leasehold interest within section 108 of the Finance Act 2003.

Nick’s reasoning was that where a long lease remains in place, the reversion is treated separately and can fall within the statutory exemption. He also noted that if there are additional features, such as linked acquisitions or more complex life tenancy arrangements, those need separate analysis because they may affect whether the transaction is still just a simple reversionary acquisition.

The Law

SDLT is charged on land transactions under section 42 of the Finance Act 2003. Under section 43, a land transaction is the acquisition of a chargeable interest. Section 48 defines a chargeable interest broadly as an estate, interest, right or power in or over land, other than an exempt interest. Section 50 provides that SDLT is charged by reference to the chargeable consideration, unless an exemption applies.

The relevant exemption here is in Schedule 3 to the Finance Act 2003. Paragraph 3 provides that a land transaction is exempt if:

• the subject matter of the transaction is a reversion expectant on the termination of a lease; and
• at the effective date of the transaction, the unexpired term of that lease exceeds 21 years.

This is an important and specific exemption. It can apply whether the reversion is freehold or leasehold. The legislation focuses on the nature of the interest acquired and the length of the lease still in existence at the effective date.

Section 108 of the Finance Act 2003 is also relevant because it deals with linked transactions. If what appears to be a reversionary purchase is in fact linked with the acquisition of the leasehold interest, the SDLT analysis may change.

Analysis

The analysis should be done in stages.

1. Identify what is actually being bought

   The first question is whether the buyer is acquiring only the reversionary interest. If the legal interest being transferred is the interest that takes effect after the existing lease comes to an end, that is a reversion. If, however, the buyer is also acquiring the lease itself, or rights that amount to more than the reversion, the exemption may not apply in the same way.

2. Confirm the lease position at the effective date

   The next question is whether the existing lease has more than 21 years unexpired on the effective date of the transaction. A 90-year lease would usually satisfy this comfortably, provided that the lease is valid and still has more than 21 years left when completion occurs.

3. Check whether the transaction is linked with any lease acquisition

   If the buyer is also acquiring the leasehold interest, or if there is a wider arrangement under which the lease and reversion are being acquired in linked transactions, section 108 may become relevant. In that situation, the exemption for the reversion cannot simply be looked at in isolation.

4. Consider whether the life tenancy structure changes the analysis

   A life tenancy can sometimes introduce complexity, because the legal and beneficial interests may not be as simple as an ordinary sale of a freehold reversion. The key question is still whether, as a matter of SDLT law, the subject matter acquired is the reversion expectant on the termination of the lease. If the life tenancy provisions create additional rights or involve other interests being transferred, those elements must be reviewed carefully.

5. Apply paragraph 3 of Schedule 3

   If the buyer is acquiring only the reversion, the lease has more than 21 years left, and there is no linked acquisition of the leasehold interest, the statutory wording points strongly to exemption. In that case, no SDLT should be payable on that acquisition.

The practical reason for the exemption is that while a long lease remains in place, the reversion is a future interest. Parliament has chosen to exempt that type of acquisition where the lease still has more than 21 years to run.

Outcome

If the transaction is genuinely a straightforward acquisition of the reversionary interest only, and the property remains subject to a lease with more than 21 years unexpired at the effective date, the transaction should fall within paragraph 3 of Schedule 3 to the Finance Act 2003 and be exempt from SDLT.

In that situation, the buyer would normally complete the SDLT return on the basis that the relevant exemption applies.

The main risk area is not the length of the lease, but whether the arrangement includes anything more than the purchase of the reversion. If it does, the SDLT position may need a fuller review.

Practical Steps

• Obtain and review the lease to confirm the exact unexpired term at the effective date.
• Check the transfer documents to confirm that the interest being acquired is the reversion only.
• Review the wider transaction to see whether there are any linked transactions under section 108 of the Finance Act 2003.
• Look carefully at any life tenancy documentation to ensure it does not transfer additional interests that alter the SDLT analysis.
• Make sure the SDLT return reflects the legal substance of the transaction, not just the label used in correspondence.
• If advisers have raised concerns, ask them to identify precisely which legal feature they think prevents paragraph 3 from applying.

Conclusion

A purchase of a reversionary interest can be exempt from SDLT where the property is already subject to a lease with more than 21 years left to run. On the facts described, the exemption in paragraph 3 of Schedule 3 to the Finance Act 2003 is likely to apply, provided the buyer is acquiring only the reversion and not the leasehold interest or some wider package of rights.

Legal References Used

• Finance Act 2003, section 42
• Finance Act 2003, section 43
• Finance Act 2003, section 48
• Finance Act 2003, section 50
• Finance Act 2003, section 108
• Finance Act 2003, Schedule 3, paragraph 3

This page was last updated on 22 March 2026.

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