SDLT - shared equity

Elle_Coco

I am looking into a buying a property that is on for £295,000 and has been for a while. Its empty and is a new build cottage on its own on some gorgeous land.

We want to pay around £275k for the house - and the owner is considering doing shared equity with us on a 75% / 25% basis (won't go deeply into the reasons but our income increases dramatically over the next two years explaining why we're looking intot his option).

Whislt still deciding, how does SDLT works in this circumstance? We will be buying the 3/4 of the property off him for around £206k, then paying the rest after a remortgage in a few years. SDLT increases to 3% IIRC over £250k - would we be paying SDLT on the £275k or the £206k?

Richard_Webster

I'm not really sure how you actually buy 75% of the house. You could be buying the whole house for £206K with a promise of a further payment later on a sale or after 10 years or whatever. Actually I don't think that is what will happen - see later in post, but if it does then see next paragraphs.

If you do it that way then you will need to look at the HMRC website and may be phone their enquiries people but I would suspect that you would pay 1% on the £206K and then when you bought the remaining 25% you would pay further tax on the remaining amount but this tax would be calculated on the total price for the property. including what you had already paid as it would be treated as one trnsaction or two linked transactions - doesn't matter which..

So if the house is worth £300K by then you would be paying a further £75K - add that to £206K and you get a total price of £281K on which £8,430 SDLT is payable - deduct £2,060 already paid and you would have a bill for £6,370.

If house has gone down in value to £176K then 25% would be £44K which when added to £206K gives £250K so £2,500 SDLT would be payable of which £2,060 already paid so you would only have to pay a further £440.

I think you will find that the current builder's fad for 25% equity sharing is achieved by the builder taking a second charge on the property to secure 25% of its value. This is treated as a loan back so you are treated for SDLT purposes as paying the full £275K on completion and would then pay SDLT on that - it is just that the terms of the loan are that the amount you repay is 25% of value. Frankly it is much more likely that your deal would be structured in that way because the seller would want to make sure they got their 25% and a charge on the property is a safer way of securing this then an a agreement to pay an extra amount in the future.