What does ‘reversionary’ mean for the purposes of the 3% surcharge (1)?

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I’m trying to put together some study material for an exam body. The reference to a lease exceeding 21 years (below) is confusing, as is example 3. Does the 3% surcharge not apply to any lease with more than 21 years to run, or is a lease only exempt if it is a reversionary lease with 21 years plus to run, or the purchase of the freehold on a lease with 21 years plus to run?  On the basis of what’s written for condition B it would appear that only leases with between 7 and 21 years to run would be subject to the surcharge, which doesn’t seem logical!

From the November 2016 guidance note:

“Individuals – purchase of a single dwelling – Condition B

3.5 Condition B is that the interest in the dwelling purchased is either not subject to a lease or, if it is subject to a lease, the lease has no more than 21 years to expiry at the date of the transaction11.

3.6 A purchase of a freehold or leasehold interest that is subject to a lease with more than 21 years remaining will not be chargeable at the higher rates.

Example 3

·   A freehold subject to a lease with 80 years left to expiry will not meet Condition B.

·   A leasehold with 80 years to expiry that is subject to a lease with 15 years to expiry will meet Condition B.”

Your opinion would be much appreciated.

 

 

A lease originally granted for a term of seven years or less is not a major interest for the purposes of the 3% surcharge. That is different from Condition B which is that the major interest in the dwelling which is already owned must not be reversionary on a lease which has more than 21 years to run at the effective date.  It is the reversionary interest we are looking at for Condition B. So any major interest (leasehold or freehold) which is reversionary on a lease with more than 21 years to run at the effective date is ignored (your option three but it doesn’t have to be a freehold reversion just a reversionary interest). Hope that’s clear now.

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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