What does ‘reversionary’ mean for the purposes of the 3% surcharge(2)?
I’m currently updating the Level 3 mortgage qualification (CeMAP) study text, which obviously deals with SDLT, and have spent hours trying to clarify the surcharge rules. I have to say the HMRC guidelines are pretty unhelpful, but the particular sticking points are Conditions B and C – the 21 year lease clause.
My understanding, although that might be stretching the point, is that a normal lease exceeding 7 years and containing no reversion clauses would be subject to the surcharge if all other conditions are met. I also interpret reversionary as meaning the existing owner has secured the right to buy the freehold or extend the lease at some future point. In this case, if the existing lease has less than 21 years to run the surcharge would apply. Does it also apply when another person owns the lease and has granted a lease to someone else, with the lease reverting to the original owner at the end of the second lease term? I’m also assuming that the same interpretation of the 21 year rule applies to both Conditions B and C.
You are partially correct. A lease originally granted for a term of seven years or less is not a major interest for the purposes of the 3% surcharge but leases for longer terms are. Conditions B and C for the application of the surcharge require that the major interest in question (freehold or leasehold) must not be ‘reversionary’ on a lease which has more than 21 years to run at the effective date.
‘Reversionary’ is a land law term and means basically ‘subject to’ or ‘encumbered by’. When the interest on which a superior interest is reversionary expires the superior interest ‘falls in’. So a freehold out of which a ten year lease has been granted is reversionary on that ten year lease. The freehold in such a case is an interest in reversion. A lease does not revert back at the end of its term, it expires.
At the time of publication this response was correct however as tax legislation and practice change from time-to-time you should take specific advice before taking any action.
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